"When you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely, in your thoughts, advanced to the stage of science, whatever the matter may be."
Lord Kelvin

Factors Affecting the Corruption Risk and Intensity of Competition in Public Procurement at the Level of Local Government

December 21, 2020

Tóth, I. J. and Hajdu, M. 2020. Factors Affecting the Corruption Risk and Intensity of Competition in Public Procurement at the Level of Local Government. Working Paper Series: CRCB-WP/2020:1. Budapest: CRCB.

 

This paper investigates the level of corruption risk and intensity of competition of public tenders at the municipal level in Hungary. It analyses the relationship of these factors with the level of human capital, economic development, and settlement size. The paper’s novelty is the sub-national level, and that the research is based on microdata (contract level data), whereas the earlier research has typically been based on perception data and investigated these issues at the country level. We use Hungarian public procurement data from 2014 to 2018. The database of the analysis contains 16 thousand public procurement contracts of 291 Hungarian cities. The related raw data regarding public procurement contracts for municipalities was extracted from the Hungarian Public Procurement Authority’s homepage by the Corruption Research Center Budapest (CRCB). The results suggest that the level of risk of corruption is higher in the smaller settlements and settlements with lower levels of human capital. Behind this, we suppose two mechanisms.

On the one hand, if the level of education and income in a town is higher, it is easier for the local government to recruit well-educated and experienced public procurement experts from the local labor market and expand the local administration staff government, well-educated experts. These experts will act efficiently, and they are better able to help the local government of towns control corruption in public procurement more effectively. On the other hand, if a town has a higher level of education, a higher income level, and a higher business density, it is more likely that the local citizens, the local entrepreneurs, can force the local authorities to control corruption. As a type of white-collar crime, public procurement corruption is often carried out through complex transactions that better-educated people more easily understand. Also, public procurement corruption requires knowledge of abstract concepts (e.g., market price, competition, rent, welfare loss, etc.), which are more understandable to educated people. Therefore, in towns with insufficient education, low income, and weak business density, the local social actors that could enforce corruption control are naturally weaker.

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