Outsourcing contract design for the green transformation of manufacturing systems under asymmetric information

Abstract

<p style='text-indent:20px;'>Accepting that suppliers' capability for green transformation of manufacturing systems is private information and that the efforts made in the process of transformation invisibly involve private actions of buyers, we construct an outsourcing model including transformation services before project delivery and maintenance services within the warranty period after project delivery and research the optimal outsourcing contract design for buyers. We find that the buyer can design a set of contract menus, including fixed compensation and variable compensation related to the quantity of energy conservation and emission reduction (ECER), to identify suppliers with different transformation capabilities and encourage them to make the best efforts under asymmetric information. Second, to identify the suppliers' transformation capability, the buyer needs to pay information rent to the supplier with high transformation ability. Meanwhile, the existence of asymmetric information will make the supplier with low transformation ability exert insufficient effort, and the existence of asymmetric information will always reduce the buyer's expected utility. In addition, the example analysis shows that asymmetric information always reduces the expected number of ECERs of the buyer. Therefore, it is suggested that the government should consider screening the transformation ability of green technology suppliers, disclose to the market and recommend suppliers with high transformation ability to reduce the negative impact caused by asymmetric information.</p>