THE DESIGN OF MULTIDIMENSIONAL AUCTIONS

Procurement auctions usually require the bid to specify several charac teristics of the contract to be fulfilled. In this article I study the design of such mechanisms, allowing for a special case of correlation on the firm's costs. I describe the properties of optimal mechanisms and study the design of multidimensional auctions. Contrary to the ind ependent-costs model, to implement the optimal outcome the procurer wi ll need to use a two-stage auction: in the first stage the procurer se lects one firm; in the second stage he bargains to readjust the level of quality to be provided.