Incentive contracts of knowledge investment for cooperative innovation in project-based supply chain with double moral hazard

Abstract

The degree of knowledge investment of partners is the key to success for cooperative innovation in project-based supply chain. The intangibility and unverifiability of their knowledge investment lead to the double moral hazard which will hinder the smooth progress of cooperative innovation. In order to stimulate the knowledge investment of partners for cooperative innovation in project-based supply chain, this paper has designed formal contract and relational contract of knowledge investment with principal-agent theory, and then the incentive effects of contracts are analyzed. We find that the formal contract cannot motivate their knowledge investment effectively; the degree of knowledge investment and the revenue of participants for cooperative innovation under the relational contract are not less than that under the formal contract for all discount rate; the incentive effect of the relational contract is getting more obvious as the discount rate increases. When the discount rate reaches a certain threshold value, the optimal degree of knowledge investment and revenue of participants for cooperative innovation can be achieved through the relational contract. At last, the effectiveness of the conclusions is verified through numerical example.