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A theory of optimal deadlines


  • Toxvaerd, Flavio


This 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 agent’s efficiency. In meeting the deadline, the agent’s effort is strictly increasing over time, due to discounting. It is shown that increasing the project’s gross value decreases delivery time, while the scale or difficulty of the project decreases it. Last, it is shown that the agent’s rents are increasing in both project difficulty and gross project value.
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Suggested Citation

  • Toxvaerd, Flavio, 2007. "A theory of optimal deadlines," Journal of Economic Dynamics and Control, Elsevier, vol. 31(2), pages 493-513, February.
  • Handle: RePEc:eee:dyncon:v:31:y:2007:i:2:p:493-513

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    References listed on IDEAS

    1. Toxvaerd, Flavio, 2006. "Time of the essence," Journal of Economic Theory, Elsevier, vol. 129(1), pages 252-272, July.
    2. Gene M. Grossman & Carl Shapiro, 1986. "Optimal Dynamic R&D Programs," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 581-593, Winter.
    3. Laffont, Jean-Jacques & Tirole, Jean, 1986. "Using Cost Observation to Regulate Firms," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 614-641, June.
    4. Alex Cukierman & Zalman F. Shiffer, 1976. "Contracting for Optimal Delivery Time in Long-Term Projects," Bell Journal of Economics, The RAND Corporation, vol. 7(1), pages 132-149, Spring.
    5. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-328, March.
    6. Tsur, Yacov & Zemel, Amos, 2002. "The Regulation of Environmental Innovations," Journal of Environmental Economics and Management, Elsevier, vol. 44(2), pages 242-260, September.
    7. Robert E. Lucas, Jr., 1971. "Optimal Management of a Research and Development Project," Management Science, INFORMS, vol. 17(11), pages 679-697, July.
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    Cited by:

    1. Korok Ray, 2007. "Performance Evaluations and Efficient Sorting," Journal of Accounting Research, Wiley Blackwell, vol. 45(4), pages 839-882, September.
    2. Saez-Marti, Maria & Sjögren, Anna, 2008. "Deadlines and distractions," Journal of Economic Theory, Elsevier, vol. 143(1), pages 153-176, November.
    3. Sean D'Evelyn, 2010. "Green Research Grants," Working Papers 2010-15, University of Hawaii Economic Research Organization, University of Hawaii at Manoa.
    4. Toxvaerd, Flavio, 2006. "Time of the essence," Journal of Economic Theory, Elsevier, vol. 129(1), pages 252-272, July.
    5. Femminis Gianluca & Martini Gianmaria, 2010. "First-Mover Advantage in a Dynamic Duopoly with Spillover," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-46, November.

    More about this item

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General


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