Barron, Daniel; Georgiadis, George; Swinkels, Jeroen - In: Theoretical Economics 15 (2020) 2, pp. 715-761
Consider an agent who can costlessly add mean‐preserving noise to his output. To deter such risk‐taking, the principal optimally offers a contract that makes the agent's utility concave in output. If the agent is risk‐neutral and protected by limited liability, this concavity constraint...