Don't Kill the Goose that Lays the Golden Eggs: Strategic Delay in Project Completion

Svetlana Katolnik and Jens Robert Schöndube

VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy from Verein für Socialpolitik / German Economic Association

Abstract: It's puzzling that most projects fail to complete within the predetermined timeframe given that timing considerations rank among the major goals in project management. We argue that when managers can extract private benefits from working on a project, project delay becomes optimal. We introduce a continuous-time framework for project management activities that incorporates this feature. A manager's unobserved effort cumulatively increases the project's success probability, but decreases the expected duration of the project and with it the expected flow of on-the-job benefits. A strict deadline limits incentives for effort delay, but also decreases the probability that the project will be terminated in due time. In this trade-off, the optimal deadline balances the increase in expected project value against the expected increase in project duration and costs. Because the manager does not want to ``kill the golden goose'' prematurely, he always prefers a stricter deadline compared to the principal. As a result, project completion is threatened by both effort provision over time \textit{and} contractual agreements on time.

JEL-codes: D82 M52 M55 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-mic and nep-ppm
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc15:113046

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