Organizational Capacity and Project Dynamics,

Abstract

Organizational capacity is widely considered central to whether managers or politicians can deliver complex projects in an efficient manner. Yet in practice performance can depend on the interaction of capacity with a host of factors such as political opposition or regulatory constraints. We develop a dynamic theory of project development that examines these interactions. In the model, higher capacity enables faster progress toward completion, but opposing interests may incur costly delays by attempting to revise the distribution of project payoffs. Project designers can avoid revisions by equalizing distributive benefits or inflating project scales to make delays prohibitively costly. We show that welfare is minimized when both capacity and the ability to revise are moderate. More efficient outcomes are either smaller than socially optimal or have highly unequal distributive outcomes.