Profit-sharing Contract Research Articles

Optimal contract design with a common agency in last-mile logistics

Cooperative package collection is challenging given the lack of contract design to guarantee that the shared last-mile logistics (LML) provider divides the workload among all partners in a fair way, as it may influence the customer’s carrier choice when sending a package. However, the agency’s fairness may be influenced by principals’ individual incentives. To solve this issue, we establish a theoretical model with multiple principals (express companies) and a common agency (LML provider). We find that the optimal ex ante contract among collusive principals is a profit-sharing contract, which ensures that the principals have no motivation to take hidden actions to influence the agency’s workload division. We also provide the optimal incentive contract between the coalition and the agency.

Evolution of the Complex Partnerships between Banks and B2B e-Trading Platforms: A Theoretical Interpretation from the Chinese Market

Based on the principal-agent theory, we give a theoretical interpretation on evolution of the complex partnerships between the online SCF (supply chain finance) providers in China. First, we describe the principal-agent relationships and analyze the optimal profit-sharing contracts between the banks and the B2B platforms. Then, from a dual perspective of leadership transfer and absolute benefit change, we explain the behavioral choices of the banks in the cooperation. Results show that, at the initial stage of growth of the platforms’ abilities to rate online borrowers, the leadership and the absolute benefit of the banks will suffer a “double decline,” which explains why the leading banks in China “divorced” the B2B platforms during 2011 to 2013. However, as the platforms’ rating abilities grow to “maturity,” the absolute benefit of the banks will finally exceed its original level, and then the rational banks would cooperate with the platforms again even at the expense of losing a portion of their leadership, which answers why the banks in China have come back to “remarry” the B2B platforms since 2014.

Accelerated share repurchase and other buyback programs: what neural networks can bring

When firms want to buy back their own shares, they have a choice between several alternatives. If they often carry out open market repurchase, they also increasingly rely on banks through complex buyback contracts involving option components, e.g. accelerated share repurchase contracts, VWAP-minus profit-sharing contracts, etc. The entanglement between the execution problem and the option hedging problem makes the management of these contracts a difficult task that should not boil down to simple Greek-based risk hedging, contrary to what happens with classical books of options. In this paper, we propose a machine learning method to optimally manage several types of buyback contract. In particular, we recover strategies similar to those obtained in the literature with partial differential equation and recombinant tree methods and show that our new method, which does not suffer from the curse of dimensionality, enables to address types of contract that could not be addressed with grid or tree methods.

Mobile-App-Online-Website Dual Channel Strategies: Privacy Concerns, E-Payment Convenience, Channel Relationship, and Coordination

Today, many mobile apps (MAs) act as an efficient channel for e-tailers to sell products. In addition to selling, some of these apps even include e-payment functions. This creates e-payment convenience but also a concern on privacy. In this article, we consider a supply chain with an e-tailer which sells through such an MA and an online website. The two channels influence the demand of one another. In the basic model, the e-tailer decides the promotion efforts in both channels. We interestingly find that the optimal promotion efforts are independent of e-payment convenience and privacy concern. We analytically establish that profit-sharing contract and two-part-tariff contract can coordinate the dual channel supply chain system but not revenue-sharing contract or sales rebate contract. In the extended models, we first consider the case when the e-tailer makes product pricing as well as promotion efforts decisions together. We analytically derive the optimal solution and find that the optimal pricing and promotion efforts depend on e-payment convenience and privacy concern. We further extend the analyses to the case when the e-tailer is risk averse and uncover that: 1) when the retail selling price is exogenously given, the optimal promotion efforts between the risk-neutral and risk-averse e-tailers are the same and 2) when the retail selling price is endogenous, the corresponding optimal retail selling prices and promotion efforts between the risk-neutral and risk-averse e-tailers are different. In particular, a higher degree of risk aversion will lead to higher (lower) promotion efforts and a higher (lower) retail selling price if demand volatility is sufficiently large (small).

Solution for Islamic Banks Exploitation: A Criticism of Fixed-Yields Based Financing in Indonesia

The profit-sharing system is the main characteristic of Islamic banking that distinguishes them from conventional (ribawi) banking. However, in reality, the profit-sharing contract is rarely implemented in Islamic banking. As a result, Islamic banking is still identified as ribawi banking. Many Islamic economists have examined the reasons behind fixed income contracts, especially murabahah contract that applied predominantly, structurally, systematically and massively compared to the profit-sharing contract. Therefore, with a critical analytical approach, this study aims to dismantle and look for solution towards exploitation of fixed income-based financing in Indonesian sharia banking. The results of this study are fixed income-based financing should be applied limited to covering the operational costs of Islamic banks but the remainder must be channelled based on profit-sharing systems. Meanwhile, funding for profit-sharing systems is intended to gain profits and cover the operational cost variables. Thus, predatory exploitation of Islamic banks in Indonesia can be minimized by maintaining the composition of the maximum financing about forty per cent which is a fixed-yield based and leave the rest to a profit-sharing system. Then, the more equitable Islamic bank system and Islamic economic goals will be created and offer benefits such as the achieving of the objectives of Islamic sharia (maqashid shariah) and minimizing the image of Islamic banks as ribawi bank.

Pricing Strategy in Multi-Channel Apparel Supply Chain with Showrooming Effect

In the apparel supply chain, brick-and-mortar stores rely on sales effort to increase demand. However, the cross channel free-riding behavior of “experience offline, purchase online” will harm sales profit of physical stores. In order to solve the problem, this paper considers a multi-channel apparel supply chain consisting of an upstream manufacturer and a downstream retailer, where the manufacturer opens an online direct channel and the retailer opens offline and online channels. First, a Stackelberg game model is established between the manufacturer and the retailer. Then we study equilibrium retail prices, the sales effort level and the supply chain performance under centralized decision, decentralized decision and surplus profit-sharing (SPS) decision. Finally, the optimal results in the three decisions are compared and analyzed from perspectives of the manufacture, the retailer and the whole supply chain. Our research results show that: 1) surplus profit-sharing contract can improve retailer service level and supply chain profits, which also could avoid price competition among three channels and alleviate the negative impact of showrooming. 2) The greater the showrooming effect in multi-channels, the less the supply chain profits will get. 3) It is beneficial for the retailer to add a retailer’s online channel on typical dual channels.

Collusion or Not: The optimal choice of competing retailers in a closed-loop supply chain

While previous studies overlook the collusive behavior of retailers under bidirectional competition, we study a closed-loop supply chain (CLSC) consisting of one manufacturer and two competing retailers whose competition exists in the forward and reverse channels. Considering the retailers' potential collusive behavior and the upstream manufacturer's interactive decisions, we build three two-tier game models: Stackelberg-collusion model, Stackelberg-Nash model, and Stackelberg-Stackelberg model. We first obtain the equilibrium decisions of the manufacturer and the retailers in the three models. Furthermore, we investigate whether collusion is beneficial to the two retailers. We find that the retailers' collusion always brings remarkable profit improvement to them as a whole, while the smaller retailers may suffer severe profit loss. A profit-sharing contract is, therefore, designed to guarantee that each retailer can gain more profit by collusion. We also compare the environmental benefit and social welfare among the three models and find that collusion may do harm to the environment or social welfare compared with other models.

Two-Stage Supply-Chain Optimization Considering Consumer Low-Carbon Awareness under Cap-and-Trade Regulation

Cap-and-trade regulation is an effective mechanism to control carbon emissions. The optimization problem for a two-stage supply chain consisting of a manufacturer and a retailer under cap-and-trade regulation was investigated in this paper. Consumers’ low-carbon awareness level was considered in the decision models. Optimal decision policies, corresponding emissions, and profits were calculated for decentralized and centralized decision-making modes. Under a decentralized mode, the two-stage supply-chain optimization problem was formulated as a Stackelberg game model, where the manufacturer and retailer were the leader and follower, respectively. The manufacturer decides the emission-reduction levels per product unit and the retailer decides the retail price per unit product. The optimal decisions are derived using the reverse-solution method. By contrast, the two-stage supply-chain optimization problem under a decentralized mode was formulated as a single-level optimization model. The nonlinear model is handled by KKT optimality conditions. The influence of the regulation parameters (caps and carbon prices) and consumers’ low-carbon awareness on the optimal decision policies, the corresponding emissions, and profits is discussed in detail. A comparison between the two modes implies that the decentralized mode is dominated by the centralized mode in terms of profit and emissions. In order to provoke the decision makers under decentralized modes to make the decisions under the decentralized mode, a profit-sharing contract was designed. This study shows that higher consumer low-carbon awareness and carbon prices can improve the manufacturer-decision flexibility when there exists a profit-sharing contract. Finally, numerical experiments confirmed the analytical results.

A game theoretic approach for pricing and determining quality level through coordination contracts in a dual-channel supply chain including manufacturer and packaging company

In this study, a dual-channel supply chain (SC) comprising one manufacturer and one packaging company is considered under price and quality dependent demand. The manufacturer and packaging company compete on offered selling price and quality decisions. For the first time, this study investigates how the packaging company can influence the quality of products through packaging products. We also analyze how different game structures affect the optimal pricing and quality decisions as well as SC members' profit. In doing so, we model the investigated SC under three scenarios: (1) non-cooperative game, (2) cooperative game through revenue-sharing contract, and (3) cooperative game through profit-sharing contract. The results show that the competitive game of manufacturer and packaging company is highly beneficial for price-seeking customers. Moreover, from quality-seeking customers’ perspective, the cooperation of manufacturer and packaging company under profit-sharing contract is more preferable. Furthermore, when the customers' demand is highly sensitive to the products quality, the cooperation of manufacturer and packaging company through profit-sharing contract is more beneficial for them.

INCORPORATING MUDARABAH INSTRUMENT AS A MEANS FOR POVERTY ALLEVIATION IN NIGERIA

Mudarabah refers to a partnership investment where Rabb-ul-mal (financial provider) provides the fund to mudarib (entrepreneur) so that the latter may invest the fund in profitable commercial joint-ventures or economic enterprises. Mudarabah products are very significant and offered by almost all Islamic financial institutions. This kind of partnership-investment product is yet to be included as a major instrument to be implemented under poverty alleviation programs. Historically, poverty mitigation schemes have been implemented since the birth of independence in Nigeria. Late discovery of Islamic banking concept and products across the nation imparted several challenges on the economy of the country. Different programs had been introduced with the goal of reducing poverty in Nigeria, but none of them showed a significant success. Thus, this paper aims at adopting the mudarabah instrument into the existing schemes with the hope that poverty will be significantly reduced amid society. The paper is qualitative-based research. It uses various documents and content analysis approach to understand and analyze the process of incorporating the mudarabah instrument into poverty alleviation programs across the country. Findings showed that the agenda of reducing poverty is achievable if financial institutions and depositors can give their full cooperation on one edge, and proffer their maximum support in incorporating mudarabah instrument on the other. In light of this, this paper proposes that mudharabah, which is essentially a profit-sharing contract of Islamic banking, should be extended to the ordinary people so that they will become independent in their sustenance. Also, with the implementation of this free-interest mechanism, rich people will be relieved from direct extreme demands with no ideas and projects. Therefore, with a view of moving the country forward economically, people just need to overlook any religion propagating an idea and concentrate on the benefits the instrument will result in after its implementation.

Quality control of a four-echelon agri-food supply chain with multiple strategies

Current research into the supply chain coordination problem of product quality focuses mainly on the two-echelon supply chain, and most coordination models neglect the demand relationship between quantity and quality. Even in a direct sale pattern, an agri-food supply chain involves at least four actors, and the contract between different actors may be different. Here, we present a four-echelon agri-food supply chain that consists of one agricultural producer, one processing enterprise, one distributor, and many consumers. We also analyze the quality decision of each actor based on Stackelberg game theory and develop a combined multiple strategy (profit sharing, quality commitment, and risk sharing) for coordinating quality control in the agri-food supply chain. The results show that these strategies affect quality control at the level of the processing enterprise; however, only the profit-sharing strategy and a quality commitment to consumers affect the product quality from agricultural producers. Product quality is not associated with the profit-sharing contract between the processing enterprise and the distributor. Thus, the quality commitment to consumers is the only way for a processing enterprise to control the food market price. Furthermore, enforcing and enhancing this quality commitment to consumers by the processing enterprise will improve the quality of primary agricultural products and food.

Decisions of the Dual-Channel Supply Chain under Double Policy Considering Remanufacturing.

Considering the preference of green consumers for remanufactured products, a dual-sale-channel supply chain model with government non-intervention, government remanufacturing subsidy policy, and carbon tax policy is constructed, respectively. The difference of the optimal decision between the firm and the government under the two policies is discussed in this paper. Meanwhile, we analyze the influence of green consumers on the government’s optimal decision, based on social welfare maximization. It is found that without government intervention, social welfare is the lowest. The carbon tax policy is better when the proportion of green consumers and the environmental coefficient are extreme or moderate at the same time. Otherwise, the subsidy policy is better. The carbon tax policy is more effective than the subsidy policy in controlling carbon emissions. Profit-sharing contracts should be established by enterprises and governments to achieve win–win results.

Effects of Peer Monitoring and Contract Choice on Repayment Rates Under Group Liability Lending

This article addresses the issue of peer monitoring and choice of contracts on the repayment behaviour of the subjects. The authors conducted a laboratory experiment using student subjects from the University of Sydney, Australia by employing profit sharing (PS) and conventional interest based (IB) microfinance contracts. In the four treatments, subjects were given the choice to monitor their group partner and also had the choice between selecting one of these two contracts under the group lending scenario. The results indicated statistically significant effect of monitoring on the repayment rates. Interestingly, a significantly high percentage of subjects opted for the PS contracts against the IB contracts. These higher take up rates of PS contracts, however, were not associated with an increase in repayment rates. Not surprisingly though, as the experiment was conducted in Australia, the level of religiosity remained rather an insignificant factor affecting the repayment behaviour of the subjects.

Managing Risk Aversion for Low-Carbon Supply Chains with Emission Abatement Outsourcing.

Reducing carbon emissions, including emission abatement outsourcing at the supply-chain level, is becoming a significant but challenging problem in practice. Confronting this challenge, we therefore break down the practice to focus on a low-carbon supply chain consisting of one supplier, one manufacturer and one third-party emission-reducing contractor. The contractor offers a carbon reduction service to the manufacturer. In view of the increasing proportion of Greenhouse Gases (GHG) emissions and absence of carbon reduction policies in developing countries, we adopt the prospect of consumers’ low-carbon preferences to capture the demand sensitivity on carbon emission. By exploiting the Mean-Variance (MV) model, we develop a supply chain game model considering risk aversion. Comparing the supply chain performances of the cases under risk neutrality and risk aversion, we investigate the impact of the risk aversion of the supplier and the manufacturer on the low-carbon supply chain performances, respectively. We show that the risk aversion of chain members will not influence the relationship underlain by the profit-sharing contract between the manufacturer and contractor, whereas they may extend the supplier’s concerning range. Although the manufacturer’s risk aversion has a positive impact on the wholesale price, interestingly, the supplier’s impact on the wholesale price is negative. Furthermore, we propose a contract to coordinate the risk-averse low-carbon supply chain by tuning the aversion levels of the supplier and the manufacturer, respectively. Through numerical study, we draw on managerial insights for industrial practitioners to adopt a low carbon strategy potentially by managing the risk attitudes along the supply chain channel.

The impact of different contract structures on IT investment in logistics outsourcing

The information technology (IT) capabilities of third-party logistics (3PL) providers are important for manufacturers because they enable manufacturers to optimize their operations. However, there exists an “IT gap,” or discrepancy between manufacturers' expectations and their satisfaction with the IT capabilities of 3PL providers. Previous studies suggest that 3PL providers' IT investments are critical and necessary for developing superior IT capabilities, which, in turn, contribute to firm performance. To motivate 3PL providers to invest in developing their IT capabilities and, thus, reduce the “IT gap,” we analyze a 3PL provider's IT investment, as well as its impact on supply chain profit, under four logistics outsourcing contract structures: a fixed-price contract, a contract contingent on the on-time delivery rate, a profit-sharing contract, and a revenue-sharing contract. We find that the 3PL provider's IT investment is higher under the contingent and profit-sharing contract structures than it is under the other two contract structures. The 3PL provider's IT investment under the contingent contract is no more than that of the profit-sharing contract. Additionally, we find that the contingent and profit-sharing contracts result in a higher profit within the supply chain than the other two contract structures do, and that the supply chain profits under contingent and profit-sharing contracts are dependent on the 3PL provider's IT investment. The results provide 3PL buyers and providers guidance in terms of using contract structures to motivate IT investment in logistics outsourcing.

Corporate governance in Islamic banks: New insights for dual board structure and agency relationships

We investigate the influence of the dual board structure on the financial performance of Islamic banks. The paper also investigates the unique agency relationships using a sample of 90 Islamic banks across 13 countries over the period 2006–2014. We find that the larger the Shari’ah Supervisory Board (SSB) the better the financial performance and this result reinforces the fundamental role of the SSB to certify permissible financial instruments and products. We also find evidence of the scope of operation hypothesis with respect to both the board of directors and the SSB as Islamic banks are characterised by a higher degree of complex operations. Interestingly, we find that a larger SSB size may result in lower agency costs and that the greater the size of the unrestricted contracts, the higher the agency costs. This implies that unrestricted profit-sharing contracts are one of the main sources of the unique agency relationships in Islamic banks. The paper has a number of policy implications for regulators including the design of governance mechanisms in Islamic banks and the dynamics of unrestricted contracts.

Uncle Coco's Magic Shop: A Negotiation Exercise

A toy retailer plans to order a new product from an untested supplier for the winter holiday season. This exercise provides an opportunity for students to construct a model to determine optimal order quantity when demand is not known. Profits are calculated based on wholesale pricing, revenue-sharing, profit-sharing, and buyback contracts.

Profit Sharing Contract Model for Supply Chain of Uncertainties Under Risk Aversion

Profit Sharing Contract Model for Supply Chain of Uncertainties Under Risk Aversion

Coordination and Incentive Contract within Supply Chain : A Comparative Analysis of Benefit Sharing, Revenue Sharing and Profit Sharing Contract

Coordination and Incentive Contract within Supply Chain : A Comparative Analysis of Benefit Sharing, Revenue Sharing and Profit Sharing Contract

Social learning and principal-agent problems in profit sharing contract

PurposeThe purposes of this study are twofold. First, to theoretically examine the profit-sharing (mudarabah) contract that produces an optimal distribution of return in the presence of social learning (shuratic process) within the environment of asymmetric information. Second, to empirically investigate the optimal condition of profit-sharing ratio (PSR) and social learning for profit-sharing (mudarabah) contract in Islamic banking.Design/methodology/approachData from one of the biggest and earliest Islamic banks in Malaysia were taken as a proxy of an Islamic bank. The data are collected from the period of 2009 to 2013, and these will be used for the simulation process by using the genetic algorithm (GA) technique.FindingsThe empirical results discovered that Islamic banks had used social learning in their daily activities, especially in the asset side. The results also showed that the trend of social learning has a positive relationship with the trend of Islamic banks’ net profit. Additionally, the results also indicated that the Islamic banks’ net profit has a positive relationship with its PSR from the profit-sharing (mudarabah) financing and securities investment.Originality/valueThis study is the first of its kind that investigates the implementation of the social learning process in Islamic banking operation. This study also used the latest technique from artificial intelligence system, i.e. a GA, to attain an optimal value for PSR and social learning process.