Kamikazes in Public Procurements

Department: Finance

Speaker: Alminas Zaldokas (HKUST)

Room: T020

Abstract

Using detailed public procurement data from 15 million item purchases in Brazil span-
ning 2005-2021, our analysis uncovers a prevalent bid-rigging pattern: the lowest bid-
der, referred to as ‘kamikaze’, typically withdraws after the auction concludes, paving
the way for the second-lowest bid to emerge as the winner. This pattern is observed
in up to 22% of procurement auctions and results in 17% higher procurement prices.
Kamikaze and winning firms are more likely to share owners, suggesting collusion.
This bid-rigging behavior correlates with negative outcomes, such as increased mortal-
ity rates in public hospitals and more road accidents following road service contracts.