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. The optimal bids and bribes are derived based on an iid private cost assumption. In the experiment, bribes are negatively framed (betweensubjects treatment) to capture that society is better off if bribes are rare or low. Although bids 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.