Deadlines and Distractions
We consider a principal-agent model in which a task, demanding a sequence of efforts by the agent, must be completed by a certain date. Effort is not contractible. Agents are subject to shocks affecting their opportunity cost of time such that they are distracted from work when the opportunity cost of time is high. We show that the probability that a task is completed by the deadline is a non-monotonic function of the agent’s probability of being distracted. The anticipation of future distractions induces rational agents to get started earlier for precautionary reasons. As a result, agents who are more often distracted may outperform agents who are distracted less often. Principals can increase the probability that the task is completed, and thus achieve higher profits, by strategically setting "tight" deadlines, provided that these can later be extended with a positive probability.
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1181, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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