(type), and a gain-loss valuation that depends on deviations of purchased quality from a reference point. Following Koszegi … Rabin (2006), we consider loss-averse buyers who evaluate gains and losses in terms of changes in the consumption valuation … of the Mirrlees representation of the indirect utility to fully characterize optimal contracts for loss-averse consumers …

As predicted by loss aversion, numerous studies find that penalties elicit greater effort than bonuses, even when the … underlying payoffs are identical. However, loss aversion also predicts that workers will demand higher wages to accept penalty …, but do not significantly reverse it. Overall, loss aversion seems to play surprisingly little role in this setting. The …