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Incentive Contracts for Sustainable Growth of Small or Medium-Sized Enterprise

Author

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  • Daehyeon Park

    (College of Economics, Sungkyunkwan University, Seoul 03063, Korea)

  • Jinhyeong Jo

    (Financial Supervisory Service, Seoul 07321, Korea)

  • Doojin Ryu

    (College of Economics, Sungkyunkwan University, Seoul 03063, Korea)

Abstract

This study analyzes incentive contracts in public procurement supply chains using a game-theoretic approach. Specifically, we compare a structure in which the host company is a large enterprise and the partner company is a small or medium-sized enterprise (SME) to a structure in which the host is an SME and the partner is a large enterprise. For each structure, we examine whether an incentive contract improves supply chain performance and confirm that the performance improvement effect is greater when the host company is an SME. Our analysis has several policy implications. SMEs are less likely to be selected as host companies for large-scale procurement projects, limiting their growth opportunities. Thus, to enable SMEs’ sustainable growth through large-scale procurement projects, the governments can allocate a portion of public procurement to SMEs. The introduction of incentive contracts elicits sustainable cooperation from large companies when an SME is the host company in a public procurement supply chain.

Suggested Citation

  • Daehyeon Park & Jinhyeong Jo & Doojin Ryu, 2021. "Incentive Contracts for Sustainable Growth of Small or Medium-Sized Enterprise," Sustainability, MDPI, vol. 13(9), pages 1-10, April.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:9:p:4964-:d:545517
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    References listed on IDEAS

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    Cited by:

    1. Daehyeon Park & Doojin Ryu, 2023. "E‐commerce retail and reverse factoring: A newsvendor approach," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 416-423, January.

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