Corruption, Government Turnover, and Public Contracting Market Structure – Insights Using Network Analysis and Objective Corruption Proxies

GTI-WP/2017:02, Budapest: Government Transparency Institute

38 Pages Posted: 24 Jan 2018 Last revised: 28 Jan 2018

See all articles by Mihaly Fazekas

Mihaly Fazekas

University of Cambridge - Faculty of Human, Social, and Political Science

Jiří Skuhrovec

Charles University in Prague - Department of Economics

Johannes Wachs

Central European University (CEU)

Date Written: September 21, 2017

Abstract

Many policymakers and researchers study and debate how to control and limit corruption. Few have examined the mechanisms by which corruption distorts markets and how they may be influenced to mitigate negative effects. To develop this new perspective, we study how corruption effects the structure of public contracting markets modelled as networks of connected buyers and suppliers. We examine the impact of political power-sharing on these networks via government turnover timing and frequency. We do so in two similarly corrupt countries with different electoral systems, the Czech Republic and Hungary. Measuring corruption at the contract-level using a composite index of corruption red flags, we find that high corruption risk public buyers have sparser local neighbourhoods, meaning that they contract with fewer suppliers than expected. A buyer with an additional corruption red flag on average has 10% fewer suppliers. Moreover, highly corrupt buyers change their networks 21-38% more extensively across years with government turnover, revealing how corruption distorts markets. The effects are larger and more abrupt in Hungary than in the Czech Republic, suggesting that the frequency of electoral contestation mitigates the negative economic impact of corruption.

Keywords: corruption, public procurement, network analysis, electoral accountability

JEL Classification: H57, L1

Suggested Citation

Fazekas, Mihaly and Skuhrovec, Jiří and Wachs, Johannes, Corruption, Government Turnover, and Public Contracting Market Structure – Insights Using Network Analysis and Objective Corruption Proxies (September 21, 2017). GTI-WP/2017:02, Budapest: Government Transparency Institute. Available at SSRN: https://ssrn.com/abstract=3103402 or http://dx.doi.org/10.2139/ssrn.3103402

Mihaly Fazekas (Contact Author)

University of Cambridge - Faculty of Human, Social, and Political Science ( email )

Cambridge, CB3 9DD
United Kingdom

Jiří Skuhrovec

Charles University in Prague - Department of Economics ( email )

Prague
Czech Republic

Johannes Wachs

Central European University (CEU) ( email )

Nador utca 9
Budapest, H-1051
Hungary

HOME PAGE: http://https://www.johanneswachs.com

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
32
Abstract Views
264
PlumX Metrics