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Detecting Collusion in Timber Auctions: An Application to Romania


Jean-Daniel M. Saphores


Laval University - Département d'Économique

Jeffrey R. Vincent


University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS)

Valy Marochko


Consultant

Ioan Vasile Abrudan


Transilvania University of Brasov

Laura Bouriaud


University "Stefan Cel Mare" Suceava

Clifford Zinnes


University of Maryland - Center on Institutional Reform and the Informal Sector (IRIS)

December 1, 2006

World Bank Policy Research Working Paper No. 4105

Abstract:     
Romania was one of the first transition countries in Europe to introduce auctions for allocating standing timber (stumpage) in public forests. In comparison with the former system in the country - administrative allocation at set prices - timber auctions offer several potential advantages: greater revenue generation for the government, a higher probability that tracts will be allocated to the firms that value them most highly, and stronger incentives for technological change within industry and efficiency gains in the public sector. Competition is the key to realizing these advantages. Unfortunately, collusion among bidders often limits competition in timber auctions, including in well-established market economies such as the United States. The result is that tracts sell below their fair market value, which undermines the advantages of auctions. This paper examines the Romanian auction system, with a focus on the use of econometric methods to detect collusion. It begins by describing the historical development of the system and the principal steps in the auction process. It then discusses the qualitative impacts of various economic and institutional factors, including collusion, on winning bids in different regions of the country. This discussion draws on information from a combination of sources, including unstructured interviews conducted with government officials and company representatives during 2003. Next, the paper summarizes key findings from the broader research literature on auctions, with an emphasis on empirical studies that have developed econometric methods for detecting collusion. It then presents an application of such methods to timber auction data from two forest directorates in Romania, Neamt and Suceava. This application confirms that data from Romanian timber auctions can be used to determine the likelihood of collusion, and it suggests that collusion reduced winning bids in Suceava in 2002 and perhaps also in Neamt. The paper concludes with a discussion of actions that the government can take to reduce the incidence of collusion and minimize its impact on auction outcomes.

Number of Pages in PDF File: 58

Keywords: Forestry, Wildlife Resources, Markets and Market Access, Access to Markets, Technology Industry

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Date posted: December 29, 2006  

Suggested Citation

Saphores, Jean-Daniel M. and Vincent, Jeffrey R. and Marochko, Valy and Abrudan, Ioan Vasile and Bouriaud, Laura and Zinnes, Clifford, Detecting Collusion in Timber Auctions: An Application to Romania (December 1, 2006). World Bank Policy Research Working Paper No. 4105. Available at SSRN: http://ssrn.com/abstract=954058

Contact Information

Jean-Daniel M. Saphores (Contact Author)
Laval University - Département d'Économique ( email )
2325 Rue de l'Université
Ste-Foy, Quebec G1K 7P4 G1K 7P4
Canada
418-656-5122 (Phone)
418-656-2707 (Fax)
Jeffrey R. Vincent
University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS) ( email )
9500 Gilman Drive
La Jolla, CA 92093-0519
United States
Valy Marochko
Consultant ( email )
Ioan Vasile Abrudan
Transilvania University of Brasov ( email )
Sirul Beethoven Nr. 1
Brasov, RI Brasov 2200
Romania
Laura Bouriaud
University "Stefan Cel Mare" Suceava ( email )
Strada Universității 13
Suceava, 720229
Romania
Clifford Zinnes
University of Maryland - Center on Institutional Reform and the Informal Sector (IRIS)
2105 Morrill Hall
College Park, MD 20742
United States
(301) 405 3064 (Phone)
(301) 405 3020 (Fax)
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