Changes

*However, other contractual information, such as how the task will be carried out, could be more important than the price alone.

*If there is competitive bidding on price alone, bidders might withhold information in order to hold up the principal later (once they have won the contract)

The questions are therefore:

*How do incentives affect the information that firms provide to the principal

*How should information be compensated.

Suppose for example, that the principal (the purchaser) has a preference for durability of the product as well as price. One solution is to create a scoring rule to force bidders to incorporate both types of information:

<math>s_i = f(b_i, d_i)\,</math>

where <math>s_i\,</math> is the score for firm <math>i\,</math>, <math>b_i\,</math> is their price bid, and <math>d_i\,</math> is there durability bid. <math>f(\cdot)\,</math> is a function that weights the inputs according to the principal's requirements.