Dynamic Contracts and Learning by Doing (Prat, 2014)
This paper studies the design of optimal contracts in dynamic envi-
ronments where agents learn by doing. We derive a condition under
which contracts are fully incentive compatible. A closed-form solution
is obtained when agents have CARA utility. It shows that human cap-
ital accumulation strengthens the power of incentives and allows the
principal to provide the agent with better insurance against transitory
risks.
