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Multidimensional procurement auctions with unknown weights


  • Thomas Greve

    (Department of Economics, University of Copenhagen)


This paper studies the consequences of holding a procurement auction when the principal chooses not to show its preferences. My paper extends the procurement auction model of Che (1993) to a situation where both the principal and the agents have private information. Thus, unknown parameters of both the principal and the agents leads to unclear reaction strategies. I show that an unknown weight on the principal’s valuation of quality leads to the production of to much quality and to high informational rent. A problem that can be reduced using a revelation mechanism. Having an unknown weight on quality gives rise to an analysis of a principal that can not fully commit to the outcome induced by the scoring rule. Therefore, my result apply to contract theory and it’s problems with imperfect commitment.

Suggested Citation

  • Thomas Greve, 2011. "Multidimensional procurement auctions with unknown weights," Discussion Papers 11-23, University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:kuiedp:1123

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    References listed on IDEAS

    1. Jeremy Bulow & Paul Klemperer, 2009. "Why Do Sellers (Usually) Prefer Auctions?," American Economic Review, American Economic Association, vol. 99(4), pages 1544-1575, September.
    2. Yeon-Koo Che, 1993. "Design Competition through Multidimensional Auctions," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 668-680, Winter.
    3. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, vol. 47(1), pages 61-73, January.
    4. John Asker & Estelle Cantillon, 2010. "Procurement when price and quality matter," RAND Journal of Economics, RAND Corporation, vol. 41(1), pages 1-34.
    5. Paul Milgrom & Ilya Segal, 2002. "Envelope Theorems for Arbitrary Choice Sets," Econometrica, Econometric Society, vol. 70(2), pages 583-601, March.
    6. Dasgupta, Sudipto & Spulber, Daniel F., 1989. "Managing procurement auctions," Information Economics and Policy, Elsevier, vol. 4(1), pages 5-29.
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