Setbacks, Shutdowns, and Overruns
Econometrica, Forthcoming
52 Pages Posted: 8 Feb 2021 Last revised: 13 Feb 2024
Date Written: February 12, 2024
Abstract
We investigate optimal project management in a setting plagued by an indefinite number of setbacks that are discovered en route to project completion. The contractor can cover up delays in progress due to shirking either by making false claims of setbacks or by postponing the reports of real ones. The sponsor optimally induces work and honest reporting via a soft deadline and a reward for completion that specifies a bonus for early delivery. Late-stage setbacks trigger randomization between minimally feasible project extension and (inefficient) cancellation. Because extensions may be granted repeatedly, arbitrarily large overruns in schedule and budget are possible after which the project may still be canceled.
Keywords: Project Management, Dynamic Agency, Soft Deadline, Cost-Plus-Award-Fee Contract, Schedule Slippage
JEL Classification: C72, D21, D86, M11
Suggested Citation: Suggested Citation