A Safety Signaling Game for Small and Medium-sized Manufacturing Enterprises in the Supply Chain

Abstract

Due to information asymmetry and a prevailing focus on production that ignores safety among small and medium-sized manufacturing enterprises (SMMEs), it is difficult for core enterprises in the supply chain (SC) to establish partnerships with SMMEs that have a high safe production level (SPL). We found that SMMEs would conceal their real SPL when being selected as core enterprise suppliers. This is known as adverse selection. According to the principal-agent theory, we built a signaling model to analyze the conditions of the pooling equilibrium and the separate equilibrium of the signaling game between core enterprises and SMMEs. The equilibrium results showed that adjusting the signal cost parameters of the SMMEs can guide the market to separate equilibrium and stop SMMEs from concealing or exaggerating their SPL. We also discuss corresponding suggestions. This research can reduce SC risks and promote the establishment of sustainable cooperative relationships between core enterprises and SMMEs with high SPLs. This study is applicable globally.