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...

In this article I shall analyze a principal-agent model with moral hazard and adverse selection. I show that for a large class of environments, communication has no value to the principal and that he cannot do better than to average over the different types of agents. This observation is then...

We analyze the design of legal principles and procedures for court decision making in civil litigation. The objective is the provision of incentives for potential tort-feasors to exert care when evidence is imperfect and may be distorted by the parties. Efficiency is consistent with courts...