Abstract

People are partially time inconsistent and many have difficulties committing to a detailed schedule for a project. I study optimal interim deadlines and how they affect the behavior and resulting welfare of the present-biased agent. I consider a model in which there are three types of agent in terms of how the agent understands her present bias: naïve, sophisticated, and partially-sophisticated. For each type, there is a unique design for an exogenous interim deadline that maximizes the agent's welfare. However, only the sophisticated agent would self-impose an optimal interim deadline, while the naïve agent would not apply a self-imposed deadline at all. The partially-sophisticated agent sets a nonoptimal self-imposed deadline and can even decrease her own welfare by imposing it. The main result is that the partially-sophisticated agent who is relatively less present-biased would decrease her own welfare by using a self-imposed deadline, and the partially-sophisticated agent who is relatively more present-biased would increase her welfare given the same degree of sophistication.

Abstract

I study optimal interim deadlines in the context of procrastination and multiple simultaneous projects. While deadlines are well studied in the context of single and repeated projects, the spillover effects of deadlines are understudied. I consider a model in which the present-biased agent pursues two simultaneous projects under one exogenous interim deadline in each project. I study how the design for interim deadlines affects the agent's behavior and welfare and characterize the optimal design that maximizes the agent's welfare. I find that the spillover effects of deadlines significantly affect the optimal design for interim deadlines. Specifically, given two symmetric projects, it is not optimal to symmetrically generalize the optimal design for an interim deadline in the case of one project, while it is optimal to impose interim deadlines sequentially: first in one project, then in another.