In this assignment we analyse the problem of quality cut in public procurement when the quality is not verifiable. Our paper contributes to the large literature studying the enforcement of unverifiable quality in procurement, first, analysed by Kim (1998), then continued by Doni (2006) and Albano et al. (2017a). We identify reputational mechanism as a good tool to solve the problem of quality. As Tatone did (2016), we assume that the Public Administration uses a specific reputational mechanism: a weighted reputation auction. It is an award rule that penalizes companies that have behaved opportunistically in the past, and rewards companies that have respected contractual commitments. We show that this discriminatory competitive mechanism can lead contractors to deliver the required level of quality. Furthermore, we obtain that weighted reputation auction is a socially desirable mechanism. However, due to restrictive conditions on the utility function the PA cannot commit itself to adopting this kind of mechanism.
Keywords: Reputation, public procurement, auction theory, unverifiable quality
Jel Code: D82, H57, L14