We study a continuous-time principal-agent model in which a risk-neutral agent with limited liability must exert unobservable effort to reduce the likelihood of large but relatively infrequent losses. Firm size can be decreased at no cost or increased subject to adjustment costs. In the optimal...

The authors provide existence proofs and characterization results for the multidimensional version of the multiproduct monopolist problem of M. Mussa and S, Rosen (1978). These results a are also directly applicable to the multidimensional nonlinear pricing problems studied by R. Wilson (1993)...

The authors study a differentiated industry in which two firms compete by offering intervals of qualities to heterogenous consumers. They establish conditions which, for perfect competition and monopoly, imply that different consumers choose different qualities. Under these conditions, they show...