Debarment and Collusion in Procurement Auctions

Abstract

This paper explores the impact of debarment as a deterrent of collusion in first-price procurement auctions. We develop a procurement auction model where bidders can form bidding rings, and derive the bidding and collusive behavior under no sanction, debarment and fines. The model's predictions are tested through a lab experiment. We find that debarment and fines both reduce collusion and bids. The deterrent effect of debarment increases in its length. However, the debarment of colluding bidders reduces efficiency and increases the bids of non-debarred bidders. The latter suggests that the market size reduction resulting from debarment may trigger tacit collusion.JEL Codes: C92; D03; D44; K21; K42.