LAUSR

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.