An Economic Analysis of Debarment
Abstract: With the purpose of reducing the consequences of corruption in public procurement, many governments have introduced debarment of suppliers found guilty in corruption and some other forms of crime. This paper explores the effect of debarment on public procurement. Debarment is found to deter corruption in markets with limited competition as long as there is a certain risk of being detected in corruption and firms value public procurement contracts in the future. As a side-effect, however, debarment (when it occurs) facilitates collusion as it decreases the number of future potential suppliers, while it cannot be expected to improve integrity on the side of governments. Excluding all suppliers involved in collusion is not a practical option, and thus, debarment of firms guilty of bid rigging is an inefficient strategy against collusion. Debarment of notorious bribers and fraudulent suppliers will always be warranted. If the practice is considered an anticorruption strategy, however, it may overshadow the need for more effective initiatives - including enforcement of competition rules and strategies to reduce corruption in government.
