Option value to waiting created by a control problem

We study a principal-agent model in which there is an option to defer a cap ital project approval decision. A control (incentive) problem makes the opt ion to wait valuable when it would not have been valuable otherwise. Deferr ing the project approval decision has both a cost and a benefit. The cost o f waiting is that the agent's uncertainty regarding future project cost rea lizations cannot be exploited. However, by delaying the first project's app roval decision, the principal can condition its approval on the agent's cos t report of the second project. Such conditioning can be valuable in the pr ovision of incentives because of a diversification effect.