We provide a model of dynamic duopoly in which firms face financial constraints and disappear when they are unable to fulfill them. We show that, in some cases, Cournot outputs are no longer supported in equilibrium, because if these outputs were set, a firm may have incentives to ruin the...

Limited liability may result in inefficient accident prevention, because a relevant portion of the expected harm is externalized on victims. This paper shows that under some restrictive conditions further limiting liability by means of a liability cap can improve caretaking.