Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: May, 2024, Volume 92, Issue 3

Setbacks, Shutdowns, and Overruns
p. 815-847

Felix Zhiyu Feng, Curtis R. Taylor, Mark M. Westerfield, Feifan Zhang

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.

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Supplemental Material

Supplement to "Setbacks, Shutdowns, and Overruns"

Felix Feng, Curtis R. Taylor, Mark Westerfield, and Feifan Zhang

This supplemental appendix contains material not found within the manuscript.