Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5099279 | Journal of Economic Dynamics and Control | 2007 | 21 Pages |
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 increasing 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 optimal delivery time, while increasing the scale or difficulty of the project increases it. Last, it is shown that the agent's rents are increasing in both project difficulty and gross project value.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Flavio Toxvaerd,