Distributionally Robust Contract Design with Deferred Inspection

TL;DR

This paper characterizes optimal contracts under distributional ambiguity with deferred inspection, revealing structural properties and complexities in multi-agent settings, and introduces robust mechanisms maximizing worst-case revenue.

Contribution

It provides a complete characterization of distributionally robust contract design with deferred inspection, including optimal and Pareto optimal contracts, and analyzes multi-agent extensions under moment ambiguity.

Findings

Optimal contracts have concave allocation and linear payments under first-moment ambiguity.

Pareto robustly optimal contracts can extract higher revenue without sacrificing allocation.

Multi-agent robust mechanisms require dominant strategies and may involve correlated types.

Abstract

We study a robust contract design problem with deferred inspection, in which a principal allocates a scarce resource to an agent, observes the agent's realized outcome ex post at negligible cost, and conditions transfers on this information through rewards. The principal faces ambiguity about the agent's value distribution and seeks to maximize worst-case expected revenue subject to incentive compatibility and limited liability. In contrast to existing work on inspection mechanisms, which relies on common-prior assumptions, we adopt a distributionally robust approach based on moment information. Our main contribution is a complete characterization of the robust contract design problem with a single agent. When the ambiguity set is defined by the first moment, we identify a robustly optimal contract with a concave allocation rule and a linear payment rule. We further show that robustness does not uniquely pin down transfers: we construct a Pareto robustly optimal contract that preserves the same allocation while extracting maximal feasible payments from all types, yielding strictly higher expected revenue under non-worst-case distributions. We also derive structural results for multi-agent extensions. For ambiguity sets defined by the first $N$ moments, we show that robust optimality requires aggregate payments to be lower bounded by a multi-dimensional polynomial of degree $N$. However, unlike the single-agent case, robust multi-agent mechanisms are substantially more complex: dominant-strategy incentive compatibility becomes necessary, simple monotone mechanisms are no longer tractable, and worst-case distributions may involve correlated types or degenerate to a Dirac distribution at the mean. These results highlight a sharp contrast between robust contract design and robust multi-agent mechanism design with inspection.