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In Quebec we had an investigation into widespread corruption in construction ( https://en.wikipedia.org/wiki/Charbonneau_Commission https://en.wikipedia.org/wik

In Quebec we had an investigation into widespread corruption in construction ( https://en.wikipedia.org/wiki/Charbonneau_Commission https://en.wikipedia.org/wiki/Charbonneau_Commission ) during which the major government witness made the very strong case that thanks to the lowest-bidder-at-lowest-bid-price auction process used by municipalities you either have to be corrupt or you will go out of business. I couldn't help thinking he should have cited Vickrey at the time (unlikely that he would be aware), and the province should have move to second price auctions for dishing out government contracts, but you would have the small challenge of persuading the populous that paying an amount which isn't actually the lowest bid is actually in the long term interest of everyone, especially if the short term beneficiaries have a track record of organised crime.

whimsicalism 3y ago
I don't think a Vickrey auction would solve this problem.
matthewdgreen 3y ago
But as the article points out, Vickrey-style auctions are vulnerable to collusion. Presumably in an area where there's already lots of corruption you're going to see plenty of this.
- EricButton 3y ago
  true. wonder if there's something like the average of the 2 best bids that would mitigate this problem. coupled with anti-corruption enforcement...
- fidotron 3y ago
  Indeed, you would need carrot and stick. The point the witness made was that under the current system you could not profit without collusion. (Edit to add: and that means that all honest people end up driven out of the construction industry). At least under a Vickrey system an honest person can make a profit hypothetically proportional to the social benefit provided. The flip side is you would have to tell people that while you're going to increase what you pay them your tolerance for collusion (and it is essentially tolerated today) will go down, and mean it.
- Veserv 3y ago
  They are vulnerable to collusion in the sense that if all partys collude to decide who is going to win, then the winner bids X and the losers never put in a bid, so the pre-determined winner pays $0. In that sense, literally every auction is vulnerable to collusion. The only net downside to the Vickrey auction is that the winner still wins even if there is a defector, they would just pay more. This is in contrast to say a normal first-price auction where the winner values at $100 and the losers value at $99, so they collude to have the winner bid $1 and the colluders bid $0, but then there is a incentive for the colluders to defect and pay $2 to get the thing they value at $99. So, vulnerable to collusion in this sense is more that it is vulnerable to collusion with little to no risk of defection. However, if there are non-colluders, then the best you get is the highest bid of the non-colluders.

whimsicalism 3y ago

I don't think a Vickrey auction would solve this problem.

matthewdgreen 3y ago

But as the article points out, Vickrey-style auctions are vulnerable to collusion. Presumably in an area where there's already lots of corruption you're going to see plenty of this.

EricButton 3y ago
true. wonder if there's something like the average of the 2 best bids that would mitigate this problem. coupled with anti-corruption enforcement...
fidotron 3y ago
Indeed, you would need carrot and stick. The point the witness made was that under the current system you could not profit without collusion. (Edit to add: and that means that all honest people end up driven out of the construction industry). At least under a Vickrey system an honest person can make a profit hypothetically proportional to the social benefit provided. The flip side is you would have to tell people that while you're going to increase what you pay them your tolerance for collusion (and it is essentially tolerated today) will go down, and mean it.
Veserv 3y ago
They are vulnerable to collusion in the sense that if all partys collude to decide who is going to win, then the winner bids X and the losers never put in a bid, so the pre-determined winner pays $0. In that sense, literally every auction is vulnerable to collusion. The only net downside to the Vickrey auction is that the winner still wins even if there is a defector, they would just pay more. This is in contrast to say a normal first-price auction where the winner values at $100 and the losers value at $99, so they collude to have the winner bid $1 and the colluders bid $0, but then there is a incentive for the colluders to defect and pay $2 to get the thing they value at $99. So, vulnerable to collusion in this sense is more that it is vulnerable to collusion with little to no risk of defection. However, if there are non-colluders, then the best you get is the highest bid of the non-colluders.