Bribery and public procurement: an experimental study

A procurement contract is granted by a bureaucrat (the auctioneer) who is interested in a low price and a bribe from the provider. Procurement is thus a multi-dimensional bidding contest with one-dimensional type space (the privately known cost). The optimal price and bribe bid is derived based on an iid private cost assumption. In the experiment, bribes are negatively framed to capture that society is better off if bribes are rare or low. Although bid prices are lower than predicted, behavior is qualitatively in line with the linear equilibrium prediction. When bribes generate a negative externality, there is a significant increase in the variability of the data.