American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Designing Deadlines
American Economic Review
vol. 112,
no. 3, March 2022
(pp. 963–97)
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.Citation
Madsen, Erik. 2022. "Designing Deadlines." American Economic Review, 112 (3): 963–97. DOI: 10.1257/aer.20200212Additional Materials
JEL Classification
- D21 Firm Behavior: Theory
- D82 Asymmetric and Private Information; Mechanism Design
- D86 Economics of Contract: Theory
- G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
- J33 Compensation Packages; Payment Methods
- M52 Personnel Economics: Compensation and Compensation Methods and Their Effects
- M54 Personnel Economics: Labor Management