Error Noted in “Robust Contract Designs: Linear Contracts and Moral Hazard” by Yu and Kong (2020)

Abstract

One of the main results of “Robust Contract Designs: Linear Contracts and Moral Hazard” by Yu and Kong (2020) is Proposition 4, which states that the optimal robust contract with a piecewise linear concave agent utility only consists of progressive fixed payments and linear rewards with progressive commission rates. In this note, we construct a counterexample showing that this result is wrong.