Screening a supplier with fairness preference

Kaiming Zheng,Debing Ni,Xiaoyuan Wang,J Li,K Chen,J Wu

doi:10.1051/e3sconf/202125303057

Kaiming Zheng, Debing Ni + Show 4 more

Open Access

https://doi.org/10.1051/e3sconf/202125303057

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Abstract

This paper is to study how a firm to screen an external supplier who has fairness preference using a general screening framework. The supplier with fairness preference provides products or services to the firm, and the firm designs a contract to screen the preference type of suppliers. The supplier’s fairness preference is adjusted by their ability difference, this paper analyzes how the supplier’s ability difference affect the optimal contract variables under the standard framework. The results illustrate that the larger ability difference will narrow the output difference between two different type suppliers. Associated with fairness preference, the probability distribution can increase or decrease the output difference. Furthermore, different strengths of the fairness preference would amplify or shrink the output difference between two different type suppliers.

Highlights

A superior external supplier can help a company to improve product quality and customer satisfaction, reducing service waiting time, the price of products or services, and enhancing the company’s core competitiveness effectively 1
Our result shows that our adjusted fairness preference would increase output difference between two types suppliers, and the fairness concern can amplify or diminish the effect
Social comparison and fairness concern are pervasive in a large number of areas such as consumer's behavior and labor relationship

Summary

INTRODUCTION

A superior external supplier can help a company to improve product quality and customer satisfaction, reducing service waiting time, the price of products or services, and enhancing the company’s core competitiveness effectively 1. The results of a higher distribution result than others’ circumstances or below others can lead to negative utility, which is called the Advantageous inequality aversion and the Disadvantageous inequality aversion respectively Another related stream of literature is about social comparison. An individual will compare his wage to another, if he feels that he has been treated unfairly, his productivity and cooperation may be negatively affected Both 13 and 14 shown that workers will reduce their effort provision if they perceive unfair wages. This scheme is a system to reward their employees with a monetary value on their skills, regardless of their jobs or tasks This system reduces the firm’s costs of hiring and brings flexibility and productivity to the firm 19-20. Our result shows that our adjusted fairness preference would increase output difference between two types suppliers, and the fairness concern can amplify or diminish the effect

Background

Social comparison and fairness preferences

Screening model

CONCLUSION