Resource Assembly under Capacity Uncertainty: Contracting Order and Project Completion

Metin Uyanik (), Charles Walsh () and Duygu Yengin
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Metin Uyanik: University of Queensland
Charles Walsh: Adelaide University

Adelaide Economics Working Papers from Adelaide University, School of Economics

Abstract: We study how a buyer or project sponsor chooses the order in which to approach capacityconstrained counterparties when assembling a fixed resource requirement. Committing resources early is costly, and the capacity of a counterparty approached later is unknown when the first commitment is chosen. Contracting order determines whose capacity remains unresolved, while the first commitment determines how much the later counterparty must provide. The sponsor therefore trades off the cost of committing more resources early against the risk that the remaining requirement cannot be met. She may optimally choose a first commitment that does not guarantee project completion, even though the counterparties’ combined capacity is sufficient in every realization. Maximizing expected surplus therefore need not maximize the probability of completion. Capacity uncertainty also changes the optimal contracting order. A counterparty with greater expected capacity may be approached first because its capacity is then observed before resources are committed, rather than left as the unresolved constraint on project completion. When the project is not completed, unused capacity held by the first counterparty could have covered the shortfall. Non-completion is therefore ex post inefficient, yet it maximizes expected surplus ex ante among the arrangements available under the one-shot sequential protocol. Learning capacities before contracting or allowing the sponsor to return to the first counterparty after a shortfall at sufficiently low cost eliminates non-completion. Thus, contracting order can affect resource allocation and project completion even when the counterparties, aggregate resources, bargaining power, and project value remain unchanged.

Keywords: Sequential contracting; Contracting order; Capacity uncertainty; Resource assembly; Contract design; Project-completion risk (search for similar items in EconPapers)
Date: 2026-09
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