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Game theoretic modelling of service agent warranty fraud

Author

Listed:
  • D. N. P. Murthy

    (The University of Queensland)

  • N. Jack

Abstract

When a warranty provider outsources warranty servicing to an external service agent this agent may act in a fraudulent manner. In this paper we consider a special case of service agent fraud—with the service agent overbilling the warranty provider for some of the warranty claims. A detailed inspection of a claim may be made to identify whether or not the service agent has committed fraud, but this inspection involves an additional cost to the warranty provider. This cost may be recovered by imposing a penalty on the service agent whenever a fraud is committed and it is detected. This penalty is specified in the maintenance service contract. A game theoretic approach is used to find the optimal overbilling strategy for the service agent and the optimal inspection strategy for the warranty provider. The optimal solution is the mixed strategy Nash equilibrium of a static game between the two parties.

Suggested Citation

  • D. N. P. Murthy & N. Jack, 2017. "Game theoretic modelling of service agent warranty fraud," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 68(11), pages 1399-1408, November.
    • Handle: RePEc:pal:jorsoc:v:68:y:2017:i:11:d:10.1057_s41274-016-0125-z
    DOI: 10.1057/s41274-016-0125-z
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    References listed on IDEAS

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    1. Jan A. Van Mieghem, 2007. "Risk Mitigation in Newsvendor Networks: Resource Diversification, Flexibility, Sharing, and Hedging," Management Science, INFORMS, vol. 53(8), pages 1269-1288, August.
    2. Sang-Hyun Kim & Morris A. Cohen & Serguei Netessine, 2007. "Performance Contracting in After-Sales Service Supply Chains," Management Science, INFORMS, vol. 53(12), pages 1843-1858, December.
    3. D.N.Prabhakar Murthy & Nat Jack, 2014. "Extended Warranties, Maintenance Service and Lease Contracts," Springer Series in Reliability Engineering, Springer, edition 127, number 978-1-4471-6440-1, December.
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    Cited by:

    1. Xiaolin Wang & Wei Xie, 2018. "Two-dimensional warranty: A literature review," Journal of Risk and Reliability, , vol. 232(3), pages 284-307, June.

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