Think About the Future and Wait
2016 (English)Report (Other academic)
Constructing a continuous-time principle-agent model we model two types of agents than strive to complete a project by a deadline set by the principal. Project completion is modeled using a Poisson process, and the agents may postpone effort, as not to accrue costs early on. Both agent types exhibit this behavior, but use different decision rules, and we look at the first-best under perfect monitoring, as well as second-best under hidden action. We then show that a rational agent must be more efficient than the principal, by some factor, in order to be considered for the contract. Lastly we show that the principal may increase its profit under hidden action, by sequentially contracting two different agents, in effect firing the first if it does not finish the job by a deadline set earlier than the hard deadline when the principal needs the project completed.
Place, publisher, year, edition, pages
Umeå, 2016. , 33 p.
Umeå economic studies, ISSN 0348-1018 ; 937
delegated search, principal-agent, matching, incentives, continuous-time, waiting
Research subject Economics
IdentifiersURN: urn:nbn:se:umu:diva-124594OAI: oai:DiVA.org:umu-124594DiVA: diva2:953316