Research on Services Outsourcing Contracts under Moral Hazard and Participation of Customer Enterprise

Abstract

Customer enterprise's participation in outsourcing service can reduce cost and improve efficiency, but the customer enterprise may involve in a dilemma for the moral hazard of the service provider. Focusing on moral hazard of the service provider, a principal-agent model with participation of the customer enterprise is established. Based on the model the relationship of the customer's participation, the service provider's effort and revenue sharing contract are analyzed. The results indicate that when the customer's participation and the service provider's effort are complementary, the service provider can be incented and the proportion of revenue-sharing should be increased with participation increasing. Otherwise, the service provider cannot be incented and the proportion of revenue-sharing should be decreased with participation increasing. Keywords-service outsourcing contract; moral hazard; agent theory; customer participation I. INTRODUCTION Outsourcing services from professional service provider (SP) can reduce business process complexity, lower costs, mitigate risk and accelerate business growth with the further social division of work and the continuous development of modern service (1).