Breakthroughs, Deadlines, and Self-Reported Progress: Contracting for Multistage Projects

Brett Green and Curtis R. Taylor

American Economic Review, 2016, vol. 106, issue 12, 3660-99

Abstract: We study the optimal incentive scheme for a multistage project in which the agent privately observes intermediate progress. The optimal contract involves a soft deadline wherein the principal guarantees funding up to a certain date--if the agent reports progress at that date, then the principal gives him a relatively short hard deadline to complete the project--if progress is not reported at that date, then a probationary phase begins in which the project is randomly terminated at a constant rate until progress is reported. We explore several variants of the model with implications for optimal project design. In particular, we show that the principal benefits by imposing a small cost on the agent for submitting a progress report or by making the first stage of the project somewhat "harder" than the second.

JEL-codes: D82 D86 G32 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/aer.20151181
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Citations: View citations in EconPapers (31)

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