Abstract

http://ssrn.com/abstract=2285245
 
 

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Contracting and Work Dynamics in Collaborative Projects


Morvarid Rahmani


Georgia Institute of Technology

Guillaume Roels


University of California, Los Angeles (UCLA) - Decisions, Operations, and Technology Management (DOTM) Area

Uday S. Karmarkar


University of California, Los Angeles (UCLA) - Anderson School of Management

May 1, 2013


Abstract:     
Unlike manufacturing processes, knowledge-intensive projects are often iterative, stochastic, and collaborative. In this paper, we study how contractual arrangements affect the work dynamics between a vendor and a client in finite-deadline collaborative projects. We consider a project that has been disambiguated and needs to be executed. We show that the client and the vendor should both exert high effort when the project is near completion, i.e., either when the project has reached a high state or when there is limited time left until the deadline. Otherwise, only one of them needs to exert high effort. When efforts are not contractible, i.e., with double moral hazard, the dynamics of collaboration depend on the contractual arrangement: Reward-sharing contracts yield suboptimal output and give rise to free-riding; fixed-fee completion bonuses make the vendor exert high effort only when the project has reached a high state; and with time-and-materials contracts, the vendor attempts to either shirk work or creep the project scope. Despite these shortcomings, our analysis reveals that simple contracts may perform well, but that they must be judiciously chosen based on the project characteristics.

Number of Pages in PDF File: 40

Keywords: project management, collaboration, contracting, double moral hazard, Markov game

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Date posted: June 26, 2013  

Suggested Citation

Rahmani, Morvarid and Roels, Guillaume and Karmarkar, Uday S., Contracting and Work Dynamics in Collaborative Projects (May 1, 2013). Available at SSRN: http://ssrn.com/abstract=2285245 or http://dx.doi.org/10.2139/ssrn.2285245

Contact Information

Morvarid Rahmani (Contact Author)
Georgia Institute of Technology ( email )
Atlanta, GA 30332
United States
Guillaume Roels
University of California, Los Angeles (UCLA) - Decisions, Operations, and Technology Management (DOTM) Area ( email )
110 Westwood Plaza
Los Angeles, CA 90095-1481
United States
Uday S. Karmarkar
University of California, Los Angeles (UCLA) - Anderson School of Management ( email )
110 Westwood Plaza
Los Angeles, CA 90095-1481
United States
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