Procurement with Unforeseen Contingencies

Fabian Herweg () and Klaus M. Schmidt ()
Additional contact information
Klaus M. Schmidt: Department of Economics, University of Munich, D-80539 München, Germany

Management Science, 2020, vol. 66, issue 5, 2194-2212

Abstract: A buyer who wants to procure a complex good is often aware that there may be flaws in her initial design, but she does not know what they look like. Potential sellers who discover flaws have no incentive to reveal them early if the buyer uses a price-only auction. We derive an efficient mechanism that induces all sellers to report flaws early and that allocates the project to the seller with the lowest cost. We show that this can be implemented with a simple two-stage auction that does not require any prior knowledge of the set of possible flaws.

Keywords: procurement; renegotiation; auctions; design flaws; adaptation costs; behavioral contract theory (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://doi.org/10.1287/mnsc.2019.3290 (application/pdf)

Related works:
Working Paper: Procurement with Unforeseen Contingencies (2017)
Working Paper: Procurement with Unforeseen Contingencies (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:66:y:2020:i:5:p:2194-2212

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().