This paper characterizes the optimal contract when the agent is endowed with aspirational utility. Our analysis reveals that effort and aspirations act as complements: the principal utilizes aspirational ``boosters'' to induce local risk-loving behavior, reducing the welfare costs of incentives and leading to higher effort levels. We find that the optimal compensation contract features a discontinuous jump to reach the aspiration point after good performance,...

We study optimal incentive contracts when workers privately observe whether Agentic AI can automate their jobs. Firms balance bonuses for truthful reports of successful automation with termination threats. Workers may be fired regardless of automation success (\textit{mass termination}), even though dismissing non-automatable workers destroys value. Mass termination becomes more likely when automation probability rises or workers capture more surplus. Firm value is convex in automation...

We develop a dynamic household finance model showing that student loans --  non-dischargeable in the U.S. bankruptcy -- alleviate the well-documented debt overhang in labor supply decisions. Non-dischargeability mutes opportunities for households to strategically reduce labor supply at the expense of creditors, thus mitigating incentive distortions. This effect, however, is partially undone by Income-Driven Repayment (IDR) plans, which set student loan payments formulaically regardless of...

This paper develops a methodology to solve dynamic principal-agent problems in which the agent features present-biased time preferences and naive beliefs. There are three insights. First, the problem has a recursive representation using the agent's perceived continuation value as a state variable (i.e., the remaining value the agent (wrongly) anticipates getting from the contract). Second, incentive compatibility corresponds to a volatility constraint on the agent's...