Abstract
We analyze the determinants of value creation and capture in a buyer-supplier relationship. In particular, we study how key contracting parameters, such as production efficiency, transactional integrity, incentive gaming and alignment affect outcomes when buyer faces competing suppliers. Bringing together the formalism of principal-agent framework with value-based analysis, we seek to understand the contracting micro-foundations behind choice of contracting partners and division of value. We show that transactional integrity and production efficiency are substitutes. We also find that distortion and resulting incentive gaming is unambiguously bad for welfare and hurts the buyer. For some suppliers however, value captured is maximized at intermediate levels of distortion. For alignment, we find that neither of the parties has incentives to sign a contract that maximizes value creation.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
