Setting Interim Deadlines to Persuade

TL;DR

This paper models how an agent strategically discloses information about a project to persuade a principal to continue funding, using interim deadlines and selective news disclosure based on project promise.

Contribution

It introduces a novel framework for optimal information disclosure involving interim deadlines and distinguishes strategies based on project promise levels.

Findings

Optimal disclosure involves only good news for promising projects.

For less promising projects, both good and bad news are disclosed to persuade funding.

The disclosure structure is robust to profit sharing, funding benefits, and discount rates.

Abstract

A principal funds a multistage project and retains the right to cut the funding if it stagnates at some point. An agent wants to convince the principal to fund the project as long as possible, and can design the flow of information about the progress of the project in order to persuade the principal. If the project is sufficiently promising ex ante, then the agent commits to providing only the good news that the project is accomplished. If the project is not promising enough ex ante, the agent persuades the principal to start the funding by committing to provide not only good news but also the bad news that a project milestone has not been reached by an interim deadline. I demonstrate that the outlined structure of optimal information disclosure holds irrespective of the agent's profit share, benefit from the flow of funding, and the common discount rate.