Optimal technology design

This paper considers a moral hazard model with agent limited liability. Prior to interacting the principal, designs production technology, which is specification of his cost generating each output distribution. After observing principal offers payment scheme and then chooses distribution over outputs. We show that there an optimal design involving only binary distributions (i.e., any other prohibitively high), we characterize equilibrium technology defined on distributions. Notably, payoff both players 1/e.