Kamikazes in Public Procurements: Bid-Rigging and Real Non-Market Outcomes

Bid-rigging in public procurement auctions has severe implications for public service quality. Drawing from 15 million Brazil's procurement auctions over 2005-2021, we build an ex-post observable marker to document that bid-rigging is associated with an increase in hospital mortality and a rise in road accidents. Our marker is based on a prevalent coordination strategy in Brazil's electronic reverse auctions, where the lowest bidder ("kamikaze") withdraws postauction, allowing the second-lowest bidder to win. We find that this strategy is present in 17% of auctions and increases procured prices by 10-12%. Kamikaze and winning firms frequently share ownership ties, common addresses, and a history of collaborating in the same roles across multiple auctions. A difference-indifferences analysis based on a transparency reform shows coordinated bidding declined when shared ownership became observable to auctioneers, while a regression discontinuity design shows that kamikaze firms are more likely to withdraw from an auction when a connected rival narrowly secures second place, both suggesting that kamikaze strategy is more likely associated with coordination rather than honest mistakes. Ultimately, kamikaze bidding is associated with adverse real non-price outcomes: a 19% increase in hospital mortality rates, due to depleted budgets for essential medicines, and a 13.7% rise in road accidents caused by poor maintenance quality. These effects on public services are three times larger when firms are connected, suggesting that collusion substantially worsens public service quality.