| This dissertation examines the properties of the contract that will emerge between principal and risk-neutral agents when limits are imposed on the maximum loss that the agents can be forces to bear as a consequence of contracting with the principal. We study optimal incentives design in two models. In the first model, we investigate the implications of limited liability constraints on optimal incentives design in a standard principal-agent model. In the second model, we use the mechanism design approach to examine the gains from second sourcing in the context of defense procurement, when firms cannot be compelled to sustain a loss by producing. |
