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Robust Contracts: A Revealed Preference Approach

Nemanja Antić¹; George Georgiadis²

¹ Northwestern University [email protected] · ² Northwestern University [email protected]

Abstract We study an agency model in which the principal knows the agent-optimal actions in response to K “known” contracts but is unaware of other actions available or their costs, and seeks a contract to maximize worst-case profits. The optimal contract is a mixture of the known contracts and output. Moreover, when K = 1, the single known contract maximizes the principal's profit guarantee, whereas with two known contracts, the optimal mixture puts positive weight on one of the known contracts. Our methodology is straightforward to implement, a point that we demonstrate using data from an experimental study of different incentive schemes.

DOI

10.1162/rest_a_01472

Pages

1-31

Language

en

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