Delay and Deadlines: Freeriding and Information Revelation in Partnerships

Abstract:     
We analyze the interaction between the incentives for free-riding and information revelation among partners in a dynamic setting. Partners contribute to the value of a common project, but have private information about the success of their own contribution efforts. The desire to maintain a partner's motivation to exert effort leads to a reluctance to share information which in turn affects the incentives to exert effort. Both free-riding and the lack of information revelation inefficiently delay project implementation. When the deadline for project implementation is far away, unsuccessful partners freeride on each other's efforts. When the deadline draws close, successful partners stop revealing their success in an attempt to incentivize other group members to continue to exert effort. Surprisingly, setting a tighter deadline may increase the expected time until the project is implemented, but may also increase the expected value of the project. We show that there is a unique finite optimal deadline that maximizes beneficial productive efforts while avoiding unnecessary delays. As long as the deadline is set optimally, welfare is higher when information is only privately observable rather than revealed to the entire partnership.

Number of Pages in PDF File: 65

Keywords: information search, information disclosure, group decisions, deadlines

JEL Classification: D71, D82, D83, H42

Accepted Paper Series