Contracting with Unknown Technologies

We study contracting with moral hazard when the agent has available a known (baseline) production technology but the principal thinks that the agent may also have access to other technologies, and maximizes his worst-case expected utilities under those possible technologies. The nature of the Pareto efficient contract depends on the most unproductive distribution that the principal thinks might be available to the agent. When this lower-bound technology becomes trivial and all distributions are possible, equity is a Pareto efficient contract, generalizing existing work on robust contracting. When the lower-bound technology approaches the baseline technology, efficient contracts approach debt, providing robust foundations for debt in a classic financial contracting model. For intermediate lower-bounds, participating preferred equity contracts, mixtures of debt and equity are Pareto efficient for specific technology sets.