A Theory of Optimal Deadlines

Flavio Toxvaerd

Discussion Paper Series from The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem

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.

Keywords: deadlines; delivery time; time to build; adverse selection (search for similar items in EconPapers)
JEL-codes: L10 L20 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2003-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: A theory of optimal deadlines (2007)
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