Contracting and Work Dynamics in Collaborative Projects

Posted: 26 Jun 2013  

Morvarid Rahmani

Georgia Institute of Technology - Scheller College of Business

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

Date Written: 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.

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

Suggested Citation

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

Morvarid Rahmani (Contact Author)

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
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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