mitigated by screening contracts that separate informed from uninformed experts. This result stands in contrast with the … analysis of contracts under risk, where separation is often feasible. …

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 …