Gonzalez Jimenez, Victor H. - In: Quantitative economics : QE ; journal of the … 15 (2024) 3, pp. 607-653
I show that stochastic contracts generate powerful incentives when agents suffer from probability distortion. When … implementing these contracts, the principal can target probability distortions in order to inflate the agent's perceived benefits … of exerting high levels of effort. This novel source of motivation is absent in contracts traditionally regarded as …