Abstract
We study competitive procurement administered by an agent who is supposed to evaluate bids on both price and quality by a scoring rule designed by the principal. Since the agent is in charge of verifying delivered quality, he has an opportunity to manipulate his evaluation of quality proposals in exchange for a bribe. In the presence of corruption, the optimal mechanism can be implemented by both first-score and second-score auctions in such a way that the scoring rule should deemphasize quality relative to price. We further identify factors that influence equilibrium corruption: (1) more efficient suppliers are willing to pay higher bribe; (2) the probability of corruption is decreasing in competition and increasing in the agent’s manipulation power; (3) compared to the first-score auction, the second-score auction leads to higher equilibrium bribe and thus is more vulnerable to corruption.
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