American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Optimal Procurement Design: A Reduced-Form Approach
American Economic Journal: Microeconomics
(pp. 302–34)
Abstract
Standard procurement models assume that the buyer knows the quality of the good at the time of procurement; however, in many settings, the quality is learned only long after the transaction. We study procurement problems in which the buyer's valuation of the supplied good depends directly on its quality, which is unverifiable and unobservable to the buyer. For a broad class of procurement problems, we identify procurement mechanisms maximizing any weighted average of the buyer's expected payoff and social surplus. The optimal mechanism can be implemented via an auction that restricts sellers to submitting bids within specific intervals.Citation
Zhang, Kun. 2026. "Optimal Procurement Design: A Reduced-Form Approach." American Economic Journal: Microeconomics 18 (4): 302–34. DOI: 10.1257/mic.20250128Additional Materials
JEL Classification
- D44 Auctions
- D82 Asymmetric and Private Information; Mechanism Design
- H57 National Government Expenditures and Related Policies: Procurement
- L15 Information and Product Quality; Standardization and Compatibility