Some Problems Of Corruption In Auctions

The application of the auction mechanism has been so for quite a long time. However, as the application of game theory and the mechanism design, the auction theory was only created and has been developing over the past fifty years. The magnificent paper was published by Vickrey in 1961 and then the research about auction theory sprung up like mush-rooms. The pioneer of the auction theory, Vickrey, was honored Nobel prize in 1996, and at the same time people became to recognize that auctions play an important role in our lives. All kinds of auctions designed by the economists are widely applied. Government procurements are put to practice in many countries. Millions of dollars were transacted in the form of auction every year. Auction mechanism has become one of the main forms of deal the economy industry. The aim of the design of auction mechanism is to assure the efficiency in equipping commodities (or contracts) and to choose the most competitive winner. Because of many reasons, such as principal-agent and the asymmetry of information etc., corruptions often arise in the process of auctions, especially in countries and regions where the economic system is imperfect. Our priority is to find the root of the corruption and to propose effective measures. In this essay, the corruptions are analyzed from two aspects: theory and application.Firstly, many people believe that corruptions undermine the equipment efficiency. Practically, under the given economic environment, the stage of bidding is after the stage of bribe, so all bidders are equal in two stages. This kind of corruption does not impact the effectiveness of the mechanism. If the bribery fund the auctioneer get in the firs stage is a part of the revenue of the owner, then there is no corruption, and there exists a new auction mechanism—the fixed sealed auction.Secondly, the effect of the variation in the level of the corruption is investigated. A new concept of limited corruption is created to describe the level of the corruption, by using the special right that the briber gets to describe the level of corruption in stead of the probability that the corruption happens. In second price sealed-bid auction, we find that the corruption does not affect the bidders' behavior and the outcome, since bidding the true valuation constitutes the weak dominant strategy. With regard to the first price sealed-bid auction, changes are distinct due to the limited corruption. In equilibrium, the highest bid of the briber will be more aggressive than the bids of any other bidders, which decreases other bidders' winning probabilities and increases the briber's winning probability, and the other bids of the briber will be less aggressive than the bid of any other bidders. The briber's expected payoff rises where his expected payment might be less than the counterpart of the corresponding standard first price auction. Specifically, the briber's bidding strategy differs from normal intuition if the briber has the right to submit more "legitimate" bids. The expected revenue apparently decreases, which harms the interest of the owner of the auctioned object. When every one knows the existence of the corruption, the bidder who has special right will be more aggressive at the right of the interval of the valuation distribution to keep his accumulative advantage.Thirdly, the competition and corruption in procurements or in auctions are discussed. Under the circumstance of one-dimensional information, we find that in wide economy environment, procurements are done at the reserved price with probability of one, that is to say corruptions help to shape collusion between bidders. Under the circumstance of multiple-dimensional information, the principal agent gives rise to corruption. It is shown that corruptions do harm the equipped efficiency; the cost of the efficient bidder to win is consistent with the manipulation power of the agent. That is why we standardize the behavior of the assessment committee.Lastly, investigation is carried out on the origination, development and current situation about the institution of government procurement, and the source of the corruptions in our government procurement. Some efficient measures are proposed to subtract or to prevent the corruptions in government procurement, for example, to perfect budget making, to improve the law system and the system of the management by supervision, to reinforce the specialist education and to computerize government procurement service.