Principal-agent models of moral hazard have been developed under the assumption that the principal knows the agent's risk-aversion. This paper extends the moral hazard model to the case when the agent's risk-aversion is his private information.

Consider an agent facing a risky distribution of losses who can change this distribution by exerting some effort. Should he exert more effort when he becomes more risk-averse? For instance, should we expect more risk-averse drivers to drive more cautiously? In this paper, we give sufficient...