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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.
