Canice Prendergast's paper examines the tradeoff between risk and incentives, a cornerstone of agency theory, and finds that empirical evidence often suggests a positive relationship between uncertainty and incentive provision rather than the expected negative tradeoff. The author argues that existing literature fails to account for how uncertainty affects incentives through the allocation of responsibility to employees. When environments are certain, firms assign tasks and monitor inputs, while in uncertain environments, firms delegate more responsibility but base compensation on observed output to constrain discretion. This results in a positive correlation between uncertainty and output-based pay. The paper provides theoretical and empirical evidence to support this claim, suggesting that pay-for-performance contracts are more likely in complex jobs and in uncertain settings. It also discusses extensions of the model, including the impact of multitasking concerns and partial delegation of tasks.Canice Prendergast's paper examines the tradeoff between risk and incentives, a cornerstone of agency theory, and finds that empirical evidence often suggests a positive relationship between uncertainty and incentive provision rather than the expected negative tradeoff. The author argues that existing literature fails to account for how uncertainty affects incentives through the allocation of responsibility to employees. When environments are certain, firms assign tasks and monitor inputs, while in uncertain environments, firms delegate more responsibility but base compensation on observed output to constrain discretion. This results in a positive correlation between uncertainty and output-based pay. The paper provides theoretical and empirical evidence to support this claim, suggesting that pay-for-performance contracts are more likely in complex jobs and in uncertain settings. It also discusses extensions of the model, including the impact of multitasking concerns and partial delegation of tasks.