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A theory of optimal deadlines

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  • Toxvaerd, Flavio

Abstract

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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  • 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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    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.

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    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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