American Economic Review Vol. 106 No. 12 2016
Breakthroughs, Deadlines, and Self-Reported Progress: Contracting for Multistage Projects
Abstract
We study the optimal incentive scheme for a multistage project in which the agent privately observes intermediate progress. The optimal contract involves a soft deadline wherein the principal guarantees funding up to a certain date—if the agent reports progress at that date, then the principal gives him a relatively short hard deadline to complete the project—if progress is not reported at that date, then a probationary phase begins in which the project is randomly terminated at a constant rate until progress is reported. We explore several variants of the model with implications for optimal project design. In particular, we show that the principal benefits by imposing a small cost on the agent for submitting a progress report or by making the first stage of the project somewhat “harder” than the second.
- DOI
- 10.1257/aer.20151181
- Volume
- 106
- Issue
- 12
- Pages
- 3660-3699
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref