We present a general equilibrium model of a moral-hazard economy with many rms and nancial markets, where stocks and bonds are traded. Contrary to the principal-agent literature, we argue that optimal contracting in an innite economy is not about a tradeo between risk sharing and incentives, but it is all about incentives. Even when the economy is nite, optimal contracts do not depend on principals' risk aversion, but on market prices of risks. We also show that optimal contracting does not require relative performance evaluation, that the rst best riskfree interest rate is lower than that of the rst best, and that the second-best equity premium can be either higher or lower than that of the rst best. Based on these results, we argue that given the volatility of the market portfolio, moral hazard can contribute to the resolution of the riskfree rate puzzle, but unlike the literature suggests, moral hazard can neither help explain nor deepen the equity premium puzzle.