We solve for the optimal contract when agents are reciprocal, demonstrating that generous compensation can substitute for performance-based pay. Our results suggest several factors that make firms more likely to use reciprocal incentives. Reciprocity is most powerful when output is a poor signal...

Employment protection harms early-career employees without benefitting them in later career stages (Leonardi and Pica, 2013). We demonstrate that this pattern can result from employers exploiting na¨ıve present-biased employees. Employers offer a dynamic contract with low early-career wages,...