%0 Journal Article
%@ 0899-8256
%A Garrett, Daniel F.
%D 2014
%F publications:16866
%I Elsevier
%J Games and Economic Behavior
%K Cost-based procurement
%K Simple mechanisms
%K Minimax
%P 631-641
%R 10.1016/j.geb.2013.06.004
%T Robustness of simple menus of contracts in cost-based procurement
%U https://publications.ut-capitole.fr/id/eprint/16866/
%V vol. 87
%X We consider a model of cost-based procurement in which the principal faces Knightian uncertainty about the agent's preferences for cost reduction. We show that a particularly simple incentive scheme—a menu comprising a fixed-price contract and a cost-reimbursement contract—minimizes the maximum expected payment, where this maximum is taken over the set of possible agent preferences. For some parameters of the problem, a range of alternative incentive schemes also satisfy this criterion. We show that the simple incentive scheme is not weakly dominated by any of the alternatives: there does not exist an alternative mechanism for which the expected payment is no higher for all realizations of the agent's preferences and strictly lower for some realization.