We study the implications of job destruction risk for optimal incentives in a long-term contract with moral hazard. We extend the dynamic principal-agent model of Sannikov (2008) by adding an exogenous Poisson shock that makes the match between the firm and the agent permanently unproductive. In...

This article studies a tractable theoretical model of optimal consumption and saving decisions with endogenous retirement. Particular attention is paid to the impact of an increase in the risk of losing one s job on the optimal path of consumption and wealth accumulation. Even if one does not...