Project Networks and Reallocation Externalities
Accepted to 2022 MSOM SIG Conference
43 Pages Posted: 9 Jun 2022 Last revised: 15 Jun 2022
Date Written: May 27, 2022
A project involves several “participants” - including agencies, contractors, and subcontractors - all working concurrently on multiple projects and allocating resources among them. This interdependency creates a network of otherwise unrelated projects. By constructing the largest project network ever mapped, we track the timelines of 2.6 million infrastructure projects involving 140,000 participants. We show that a seemingly localized disruption, affecting only one project site, eventually causes delays and penalties across unrelated projects. This is because self-interest drives participants to opportunistically reallocate resources into disrupted projects, at the expense of other projects, triggering a domino effect of further reallocations in the network. Thus, the costs of on-site disruptions end up being evenly shared by multiple participants within the network, rather than being fully absorbed by the affected project. Performance-based contracts, which reward contractors for timeliness, exacerbate these externalities by encouraging self-interested resource reallocation.
Keywords: Public procurement, project management, networks, empirical analysis
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