Cartels in infrastructure procurement—Evidence from Lebanon

Abstract

We study cartels in public infrastructure procurement and analyze the conditions under which they succeed in generating rents. We first conceptualize the interplay of the central actors of a procurement project, notably the contractor, the procurement agency, as well as the supervision and design consultants. By focusing on consultants, our framework includes important yet understudied actors in cartels that design tenders, evaluate bids, and supervise the implementation of projects. We go on to explore an original dataset of infrastructure procurement contracts in Lebanon and analyze the conditions under which powerful political elites can broker deals to overprice and/or overspend contracts. To examine how cartels operate, we identify the political connections of contractors and consultants and classify them according to their “quality” in terms of access to institutional functions of the implementing agency. We argue that design consultants serve as the lynchpin of the cartel by reducing transaction costs for searching, bargaining, and enforcing of corrupt deals.