We examine contractual design in a principal-agent model under two forms of limited liability: non-negative 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 and...

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...

Truthful revelation mechanisms with auditing have the undesirable property that audits are not actually performed in equilibrium because all inference problems have been solved. A model is proposed in which the inference problem is preserved by separating the regulatory and auditing functions...

This paper extends the economics literature on the incomplete enforcement of social regulation by incorporating regulatory choice in an institutional environment of limited regulatory resources and powers. We show how regulatory decisions determine the structure of incentives faced by regulated...