How to design e-procurement systems for public procurement under the threat of corruption?

By Andreas Asseyer

Many essential goods such as infrastructure, security or health services are provided by public institutions. The consumers of these goods want public production to be efficient as they cover costs either directly through fees or indirectly through taxes. Effective procurement processes are of central importance in this respect as public procurement accounts for 15 to 20 % of total GDP in OECD countries.

Corruption between procurement officers and private suppliers is a key concern threatening the efficiency of public procurement processes. To fight corruption, international organizations such as the OECD or the World Bank promote the use of digitalized procurement processes that allow suppliers to upload required documents online and offer the possibility to gather information about public projects or the past performances of suppliers in a systematic way. E-procurement systems therefore provide the tools to determine the information available to a procurement officer.

In a recent study, BCCP doctoral student Andreas Asseyer analyzes what information a procurement officer should receive about production costs of a private supplier if there is a risk that the procurement officer and the supplier may engage in corruption. If a procurement officer receives information about costs, she may use it to ensure that an adequate price is paid to the supplier. However, she may also misuse the information to organize corruption with the supplier more effectively. Due to these different effects of information, it is optimal to reveal some and to withhold other information from a procurement officer to control the threat of corruption.

Andreas’ analysis is based on a theoretical model that captures the problem of the public that delegates the task of purchasing a good to a public procurement officer who may engage in corruption with the supplier of the good. His results suggest that it may often be helpful to give a procurement officer only information about the good to be purchased and to withhold information about past performances of the supplier that would enable the procurement officer to exactly induce the supplier’s production costs.

The full research paper can be downloaded here (pdf).