# Limited Liability in Agency Problem

Consider a simple one-period model where a creditor provides $$I$$ as investment to a firm and firm produces $$\pi_G$$ or $$\pi_B$$ depending on its performance. Let $$R_i$$ the portion of the profit that the firm transfers to investor, where $$i=\{G,B\}$$.

My Questions

(1) If we enforce limited liability structure in an agency problem, why is it that:

$$\pi_i\geq R_i.$$

(2) In an agency problem, is it reasonable to have this assumption? Why have limited liability as constraint at all?