which the regulator uses information gleaned from past cost observations when designing the current period's contract. Cost …. However, the design of the regulatory contract affects how much information is gleaned. When learning more about the firm …

Consider a contract between two players, describing the payment an agent obtains from the principal, in exchange for a … good or service supplied. At each point in time, either player may unilaterally demand a renegotiation of the contract …, involving renegotiation costs for both players. Players’ payoffs from trade under the contract, as well as from a renegotiated …

uncertainty, and we illustrate the contract design in an application with Bayesian learning. The disagreement creates gains from …

. In particular, when shifting the focus from standard risk aversion to loss aversion, the optimal contract is a simple … bonus contract, i.e. when the agent's performance exceeds a certain threshold he receives a fixed bonus payment. Moreover …