Time of the Essence

Flavio Toxvaerd

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

Abstract: In most industries, ranging from information systems development to construction, an overwhelming proportion of projects are delayed beyond estimated completion time. This fact constitutes somewhat of a puzzle for existing theory. The present paper studies project delays and optimal contracts under moral hazard in a setting with time to build. Within this setup, project delays are found to be most likely to happen at early stages of development, and intimately connected to the degree of commitment of the procurer and the class of contracts that can be enforced. The firstbest, optimal spot contracting and optimal long-term contract scenarios are analyzed, as well as commonly encountered additional constraints on the long-term contract.

Keywords: deadlines; delivery; dynamic moral hazard (search for similar items in EconPapers)
JEL-codes: D82 D92 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2004-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Time of the essence (2006)
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