A simple model of dynamic incentives and occupational choice with motivated agents

People care not only about how much they are paid, but also about what they do. The aim of this paper is to investigate the interplay between an individual's personal motivation and the structure of dynamic incentive schemes. The optimal long-term contract involves not only transfers at each date which are contingent on the whole past history of outcomes but also an initially assigned mission. A modified martingale property is shown to hold in equilibrium. Moreover, the occupational choice problem is investigated and an optimal job separation rule is derived