This paper is about accidents involving two risk-neutral parties. Both parties engage in actions that are profitable but affect the magnitude of possible bilateral accidents. The authors analyze how the action choices can be decentralized by liability rules that assign the accident costs. If the...

A risk-neutral principal wishes to exact a payment from a risk-neutral agent whose wealth he does not know, but may verify thro ugh a costly auditing procedure. The authors characterize efficient s chemes for the principal when he is allowed to choose schedules for p reaudit and postaudit...