Abstract
We analyze a principal-agent model with moral hazard where the principal is risk neutral and the agent is risk averse or risk neutral. The agents' actions determine the probability distribution over outcomes, where some probability distributions require more effort than others. We analyze a family of effort disutility functions with arguably desirable properties. For a canonical class of such functions and arbitrary outcome spaces, the model is explicitly solvable. Optimal contracts combine debt with a monotonic sharing rule for the surplus created. When the agent is risk neutral, the contract is a pure debt contract. For agents with unit degree of relative risk aversion, the surplus is divided in fixed shares