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Optimal Design of Scoring Auction with Multidimensional Quality

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  • Takeshi Nishimura
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    Abstract

    This article studies the optimal design of scoring auction used in public procurement. In this auction, each supplier's offer consists of both price and quality, and a supplier whose offer achieves the highest score wins. The environment we consider has the feature that quality is multi-dimensional. We show that there exists a quasi-linear scoring rule which implements the optimal mechanism for the buyer and is supermodular in quality if the virtual surplus is quasisupermodular in quality. We further investigate how the buyer should classify quality attributes when using a scoring rule which is additively separable in the attributes.

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    File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd12-238.pdf
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    Bibliographic Info

    Paper provided by Institute of Economic Research, Hitotsubashi University in its series Global COE Hi-Stat Discussion Paper Series with number gd12-238.

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    Date of creation: Aug 2012
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    Handle: RePEc:hst:ghsdps:gd12-238

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    1. Asker, John & Cantillon, Estelle, 2004. "Properties of Scoring Auctions," CEPR Discussion Papers 4734, C.E.P.R. Discussion Papers.
    2. Jean-Jaques Laffont & Jean Tirole, 1985. "Auctioning Incentive Contracts," Working papers 403, Massachusetts Institute of Technology (MIT), Department of Economics.
    3. Asker, John & Cantillon, Estelle, 2007. "Procurement when Price and Quality Matter," CEPR Discussion Papers 6082, C.E.P.R. Discussion Papers.
    4. R. Preston McAfee & John McMillan, 1987. "Competition for Agency Contracts," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 296-307, Summer.
    5. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, number 9780521536721, April.
    6. John Asker & Estelle Cantillon, 2008. "Properties of scoring auctions," ULB Institutional Repository 2013/8999, ULB -- Universite Libre de Bruxelles.
    7. Paul Milgrom & Ilya Segal, 2002. "Envelope Theorems for Arbitrary Choice Sets," Econometrica, Econometric Society, vol. 70(2), pages 583-601, March.
    8. Riordan, Michael H & Sappington, David E M, 1987. "Awarding Monopoly Franchises," American Economic Review, American Economic Association, vol. 77(3), pages 375-87, June.
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