Optimal Task Scheduling under Moral Hazard & Adverse Selection

Abstract

A Principal owns a project consisting of several tasks. Tasks differ, both in their innate success probabilities and their incremental benefits. Moreover, specialists must be engaged to perform these tasks. Subject to moral hazard and adverse selection, in what order should the Principal commission the tasks and when should she terminate the project? What ex-ante investments into changing tasks' characteristics yield the highest marginal profit? These issues arise in diverse areas, from outsourcing drug R&D to sequencing proxy wars. We show that, despite informational constraints, a simple index - a task's effective marginal contribution - determines the optimal schedule/mechanism.