We modify the principal-agent model with moral hazard by assuming that the agent is expectation-based loss averse according to Köszegi and Rabin (2006, 2007). The optimal contract is a binary payment scheme even for a rich performance measure, where standard preferences predict a fully...

This paper characterizes optimal unemployment insurance (UI) in terms of estimable statistics in the presence of negative duration dependence for the unemployed, with endogenous callback rates generated by asymmetric information. I show how this characterization generalizes the standard...