(Your) ignorance is bliss :robust moral hazard

Advisor: Walter Novaes

We consider an environment with moral hazard where a principal and agent have heterogeneous beliefs as to how actions map to output. We focus first on optimal contracts when the principal is at some level aware of the agent's biases, demonstrating that standard firm sale is generally suboptimal in such contexts. We then look at optimal contract design when a principal who is faced with total uncertainty regarding an agent's beliefs demands robustness to his own ignorance.