Deadlines in Product Development
Name
Deadlines-Product-Development-Juanjuan-Zhang.pdf
Size
576.79 KB
Format
Adobe PDF
Checksum (MD5)
79979d78470510ecec8b38c7218942c3
Author(s)
Zhang, Juanjuan
Date Issued
April 2016
Journal
Management Science
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Citation
Zhang, Juanjuan. “Deadlines in Product Development.” Management Science 62, 11 (November 2016): 3310–3326 © 2016 Institute for Operations Research and the Management Sciences (INFORMS)
Version
Author's final manuscript
Abstract
Deadlines are common in product development and are often felt to be too harsh—many development efforts are still worth continuing at the time of mandated termination. We examine the value of deadlines from the agency-theoretic perspective. We consider a firm that pays an agent to lead product development activities. The chance of success depends on the viability of the project and the effort of the agent. As the project proceeds without success, doubts grow as to whether the project is viable. To motivate continued effort, the firm must promise the agent a generous reward if success is achieved during the late stage of development. However, rewarding late success undermines effort incentives in the early stage. The firm may find it more profitable to impose a hard, early deadline to eliminate the agent’s dynamic incentive to procrastinate. We derive conditions under which the firm should impose such deadlines.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1287/mnsc.2015.2300
