Who Bribes in Public Contracting and Why: Worldwide Evidence from Firms

Abstract:     
Abstract: We utilize survey data from over 11,000 firms operating in 125 countries and a profit-maximizing cost-benefit framework to study the determinants of procurement bribery. About one-third of firms bribe to secure public contracts, with an average bribe of 7.9% of the contract value. Econometric estimations suggest that the demand-side of good governance (voice and democratic accountability, press freedom, transparency) and the supply-side (rule of law, government effectiveness), along with competition, significantly reduce the incidence and magnitude of bribery by firms. Multinational firms appear sensitive to reputational risks in their home countries, but also partially adapt to their host country environment, with 20% bribing in middle- and low-income countries, but only 11% bribing in OECD countries; in contrast, 36% of domestic firms bribe. Larger and foreign-owned firms are less likely to bribe than smaller domestic ones, yet among bribers, foreign and domestic firms pay similar amounts. This suggests that reputational risks – affecting the decision to bribe, not the amount – are important. The results point to potential policy measures that raise the costs and lower the benefits of bribing, e.g., public disclosure of firms that bribe, and cast doubt on conventional initiatives that may not affect profits, e.g., voluntary codes of conduct.

Number of Pages in PDF File: 44

Keywords: governance, corruption, bribery, public contracting, public procurement

JEL Classification: K42, L1, H11, P48

working papers series