Designing Deadlines
American Economic Review · 2022 · Volume 112 · Issue 3
Abstract
I study how an organization should manage a project of uncertain scope, when it is advised by a privately informed expert who prefers to prolong his employment. The optimal long-term contract combines a deadline for project completion and incentive payments which decline as the deadline approaches. When the firm can additionally learn about the project's state from output, the optimal deadline exhibits variable sensitivity to output, with a hard deadline at the outset of the project and increasingly soft deadlines as the project's performance declines.
Keywords
Firm Behavior: Theory, Asymmetric and Private Information, Mechanism Design, Economics of Contract: Theory, Capital Budgeting, Fixed Investment and Inventory Studies, Capacity, Compensation Packages, Payment Methods, Personnel Economics: Compensation and Compensation Methods and Their Effects, Personnel Economics: Labor Management
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