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 collude with one of the bidders. This bidder can offer a bribe to the auctioneer to see the opponents bids before making his own bid. We show that the seller often wants to 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 cases of bidders who are informed and bidders who are uninformed about corruption.