Optimal Contracts to Prevent Corruption in Auctions

We develop a model of a sealed-bid first-price auction where the auctioneer acting on behalf of the seller may be involved in corruption. She is offered a bribe from one of the participants and can allow him to resubmit his bid. We show that the seller can often offer the auctioneer a remuneration scheme that depends on the collected revenue and prevents the auctioneer from accepting the bribe even if the legal anti-corruption institutions are weak. We consider both limited and unlimited liability as well as rational and myopic bidders