A theory of optimal deadlines
AbstractThis paper sets forth a model of contracting for delivery in an environment with time to build and adverse selection. The optimal contract is derived and characterized and it takes the form of a deadline contract. Such a contract stipulates a deadline for delivery for each possible type of agent efficiency. The optimal contract induces inefficient delay by using delivery time as a screening device. Furthermore, rents are decreasing in the agentâs efficiency. In meeting the deadline, the agentâs effort is strictly increasing over time, due to discounting. It is shown that increasing the projectâs gross value decreases delivery time, while the scale or difficulty of the project decreases it. Last, it is shown that the agentâs rents are increasing in both project difficulty and gross project value.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Dynamics and Control.
Volume (Year): 31 (2007)
Issue (Month): 2 (February)
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- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
- L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
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