Optimal Time-Contingent Contract Design1
نویسندگان
چکیده
This paper studies a contract design problem in a setting where time clauses are important. A principal hires an agent to complete a project within a xed time horizon and prefers to have the project done as early as possible. The agent whose e¤ort is not contractible has a tendency to shirk and to delay exerting e¤ort. We show that in the principals optimal contract, deadlines and payment schemes can be used jointly as e¤ective instruments to motivate the agent to exert e¤ort and to avoid delay so that a better outcome can be achieved for the principal. Speci cally, if an early successful completion time is not veri able and thus a time-contingent wage scheme is infeasible, then a stochastic deadline can be strictly optimal for the principal. On the other hand, if an early successful completion time is veri able so that the principal can adopt a time-contingent wage scheme, then the principals optimal deadline is deterministic and the optimal wage scheme features bonus for early completion. JEL classi cation: D82; J31; M52
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