Skip to main content
eScholarship
Open Access Publications from the University of California

UC Berkeley

UC Berkeley Previously Published Works bannerUC Berkeley

Breakthroughs, deadlines, and self-reported progress: Contracting for multistage projects

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.

Many UC-authored scholarly publications are freely available on this site because of the UC's open access policies. Let us know how this access is important for you.

Main Content
For improved accessibility of PDF content, download the file to your device.
Current View