We examine contractual design in a principal-agent model under two forms of limited liability: nonnegative constraints on the transfer payments to, and the profits of, the agent. We show that when limited liability is a binding constraint, the principal cannot implement the first-best solution...

We re-examine the regulatory role of a public firm in an environment of private but correlated information about industry costs. We study three regimes of mixed-market interaction involving both public and private firms: a symmetric Bayesian-Nash equilibrium, an asymmetric Bayesian equilibrium...