Bayesian implementation and rent extraction in a multi-dimensional procurement problem

B-Tier
Journal: International Journal of Industrial Organization
Year: 2020
Volume: 70
Issue: C

Authors (2)

Herweg, Fabian (Universität Bayreuth) Schmidt, Klaus M. (not in RePEc)

Score contribution per author:

1.005 = (α=2.01 / 2 authors) × 1.0x B-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

We consider a multi-dimensional procurement problem in which sellers have private information about their costs and about a possible design flaw. The information about the design flaw is necessarily correlated. We solve for the Bayesian procurement mechanism that implements the efficient allocation at the lowest cost under the constraint that sellers are protected by limited liability. We show that the rents obtained from reporting costs truthfully can be used to reduce the rents sellers must get for reporting the flaw. We compare the efficient Bayesian mechanism to the efficient ex post incentive compatible mechanism studied by Herweg and Schmidt (2019) that is informationally less demanding.

Technical Details

RePEc Handle
repec:eee:indorg:v:70:y:2020:i:c:s0167718719300438
Journal Field
Industrial Organization
Author Count
2
Added to Database
2026-02-02