Abstract
The supply chain always appears inefficient because of the different targets of members and information asymmetry, especially when upstream enterprises not only hide information about their effort levels, but also hide information about their technology level. The paper uses principal-agent theory and the theory of regulation to design the contract to realize the maximization of principal's profit on the condition that the contract satisfies the participant and incentive conditions of agent. As a result, it is obvious that the contract achieves the goal of control. In addition, it also can be concluded that the amount of rent that the manufacturer can obtain is up to the value of his information and the condition of his resource.
Highlights
Chain is a network which can put suppliers, manufacturers, distributors, retailers, and final users together, which is characterized by the integration of external resources for cooperation networks
C = (β − e) is the marginal cost of the manufacturer, and the average cost of the manufacturer. This assumption means that this paper involves two kinds of asymmetric information
By Proposition 9 we find that in the supply chain one of the major reasons why the principal enterprise provides rents, which is higher than the reservation utility of agent enterprise, to agent enterprise is that agent enterprises have some private information
Summary
Chain is a network which can put suppliers, manufacturers, distributors, retailers, and final users together, which is characterized by the integration of external resources for cooperation networks. In the literature [19], a perishable product’s supply chain consisting of a manufacturer and a retailer is considered; on the premise of retailer’s effort and return price dependent demand, the mathematical models of quantity flexibility contract are established. The literature [20] analyses retailer’s effort level’s impact on supply chain revenue-sharing evolvement- contract and gain retailer’s effort level’s reaction function and its optimal value. These pieces of literature, for example, literature [19], think that effort level of the upstream agents is private information which is the key to cause motivation. An effective solution to the principal-agent problem between the upstream and downstream enterprises is to stimulate the upstream enterprises to improve their effort levels. This paper designs the incentive system based on the supply chain through two kinds of constraints, moral hazard and adverse selection
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