Time of the Essence

19 Pages Posted: 29 Mar 2004

See all articles by Flavio Toxvaerd

Flavio Toxvaerd

University of Cambridge - Faculty of Economics

Date Written: March 2004

Abstract

In most industries, ranging from information systems development to construction, an overwhelming proportion of projects are delayed beyond estimated completion time. This fact constitutes somewhat of a puzzle for existing theory. The present paper studies project delays and optimal contracts under moral hazard in a setting with time to build. Within this setup, project delays are found to be most likely to happen at early stages of development, and intimately connected to the degree of commitment of the procurer and the class of contracts that can be enforced. The first-best, optimal spot contracting and optimal long-term contract scenarios are analyzed, as well as commonly encountered additional constraints on the long-term contract.

Keywords: Deadlines, delivery, dynamic moral hazard

JEL Classification: D82, D92

Suggested Citation

Toxvaerd, Flavio, Time of the Essence (March 2004). Available at SSRN: https://ssrn.com/abstract=521462 or http://dx.doi.org/10.2139/ssrn.521462

Flavio Toxvaerd (Contact Author)

University of Cambridge - Faculty of Economics ( email )

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

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