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A note on robust procurement contracts

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  • Rodivilov, Alexander

Abstract

We study a procurement problem where both a principal and an agent share uncertainty regarding the cost at the outset. After being offered a contract, the agent privately observes an informative signal of the marginal cost. The principal neither knows the signal distribution nor has a prior belief about possible signal distributions. We characterize a procurement contract that is robust to the principal’s uncertainty about the agent’s information structure. The principal’s worst distribution either fully reveals to the agent that the cost is low or makes him just pessimistic enough to reject the contract. In the former case, the agent accepts the contract and produces less than what he would have without the signal.

Suggested Citation

  • Rodivilov, Alexander, 2021. "A note on robust procurement contracts," Economics Letters, Elsevier, vol. 201(C).
    • Handle: RePEc:eee:ecolet:v:201:y:2021:i:c:s0165176521000628
    DOI: 10.1016/j.econlet.2021.109785
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    References listed on IDEAS

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    Cited by:

    1. Rodivilov, Alexander, 2022. "Monitoring innovation," Games and Economic Behavior, Elsevier, vol. 135(C), pages 297-326.

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    More about this item

    Keywords

    Information acquisition; Optimal contracts; Bayesian persuasion;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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