IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v15y2023i11p8773-d1158742.html
   My bibliography  Save this article

Sustainable Quality-Incentive Contract Design of Public Technology Innovation Procurement under Asymmetry Information

Author

Listed:
  • Yunjuan Liang

    (Department of Management Engineering and Equipment Economics, Naval University of Engineering, Wuhan 430033, China)

  • Xin Liang

    (Department of Management Engineering and Equipment Economics, Naval University of Engineering, Wuhan 430033, China)

  • Hua Wei

    (Department of Management Engineering and Equipment Economics, Naval University of Engineering, Wuhan 430033, China)

Abstract

Public technology innovation procurement plays an essential role in alleviating current major social challenges. In the process of government procurement, the hidden adverse selection and moral hazard caused by the unobservable technology types and efforts of enterprises are not conducive to the sustainable improvement of technology innovation quality. To sustainably encourage enterprises to improve the quality of public technology innovation procurement, based on principal-agent and incentive regulation theories, this paper designs quality-incentive contracts under single- and dual-asymmetric information conditions. We discuss the impact of various relevant factors on contract design and the level of effort by solving and analyzing the model. Furthermore, we validate the effects of the proportion of enterprise technological type, the uncertainty of technological innovation, and the quality-benefit coefficient on the contract parameters and the expected profits of both parties through numerical simulation. The results show that under dual-asymmetry information, the government can motivate enterprises to realize self-selection and improve the quality of technological innovation by designing information screening contracts. The government’s revenue is closely related to the proportion of enterprises’ technology types in the market, and information rents can swamp the government’s expected revenues when the market proportion of high-type enterprises is small. The uncertainty of technological innovation will reduce the effort of enterprises and the incentive effect of the contract. The quality-benefit coefficients of the government and enterprises have different impacts on the intensity of contract incentives with higher quality-benefit coefficients of the government, therefore having better incentive effects for enterprises. The research conclusion provides a reference for the government to design a sustainable incentive contract to improve the quality of public technology innovation.

Suggested Citation

  • Yunjuan Liang & Xin Liang & Hua Wei, 2023. "Sustainable Quality-Incentive Contract Design of Public Technology Innovation Procurement under Asymmetry Information," Sustainability, MDPI, vol. 15(11), pages 1-22, May.
    • Handle: RePEc:gam:jsusta:v:15:y:2023:i:11:p:8773-:d:1158742
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/15/11/8773/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/15/11/8773/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jon Mikel Zabala-Iturriagagoitia, 2022. "Fostering regional innovation, entrepreneurship and growth through public procurement," Small Business Economics, Springer, vol. 58(2), pages 1205-1222, February.
    2. Mariana Mazzucato, 2018. "Mission-oriented innovation policies: challenges and opportunities," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 27(5), pages 803-815.
    3. Murat Kaya & Özalp Özer, 2009. "Quality risk in outsourcing: Noncontractible product quality and private quality cost information," Naval Research Logistics (NRL), John Wiley & Sons, vol. 56(7), pages 669-685, October.
    4. Reyniers, Diane J. & Tapiero, Charles S., 1995. "Contract design and the control of quality in a conflictual environment," European Journal of Operational Research, Elsevier, vol. 82(2), pages 373-382, April.
    5. Edler, Jakob & Georghiou, Luke, 2007. "Public procurement and innovation--Resurrecting the demand side," Research Policy, Elsevier, vol. 36(7), pages 949-963, September.
    6. Sugato Bhattacharyya & Francine Lafontaine, 1995. "Double-Sided Moral Hazard and the Nature of Share Contracts," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 761-781, Winter.
    7. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, vol. 47(1), pages 61-73, January.
    8. Guohao Wang & Liying Yu, 2020. "Analysis of Enterprise Sustainable Crowdsourcing Incentive Mechanism Based on Principal-Agent Model," Sustainability, MDPI, vol. 12(8), pages 1-21, April.
    9. Gary H. Chao & Seyed M. R. Iravani & R. Canan Savaskan, 2009. "Quality Improvement Incentives and Product Recall Cost Sharing Contracts," Management Science, INFORMS, vol. 55(7), pages 1122-1138, July.
    10. Bleda, Mercedes & Chicot, Julien, 2020. "The role of public procurement in the formation of markets for innovation," Journal of Business Research, Elsevier, vol. 107(C), pages 186-196.
    11. Serenella Caravella & Francesco Crespi, 2021. "The role of public procurement as innovation lever: evidence from Italian manufacturing firms," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 30(7), pages 663-684, October.
    12. Yoo, Seung Ho & Cheong, Taesu, 2018. "Quality improvement incentive strategies in a supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 114(C), pages 331-342.
    13. Edquist, Charles & Zabala-Iturriagagoitia, Jon Mikel, 2012. "Public Procurement for Innovation as mission-oriented innovation policy," Research Policy, Elsevier, vol. 41(10), pages 1757-1769.
    14. Chen, Jiguang & Hu, Qiying, 2015. "Optimal payment scheme when the supplier’s quality level and cost are unknown," European Journal of Operational Research, Elsevier, vol. 245(3), pages 731-742.
    15. Congli Su & Mingxi Wang, 2022. "Quality incentive contract design in government procurement for innovation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3665-3684, December.
    16. Kurt R. Brekke & Roberto Cellini & Luigi Siciliani & Odd Rune Straume, 2012. "Competition in Regulated Markets with Sluggish Beliefs about Quality," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(1), pages 131-178, March.
    17. Fangruo Chen, 2005. "Salesforce Incentives, Market Information, and Production/Inventory Planning," Management Science, INFORMS, vol. 51(1), pages 60-75, January.
    18. Kiyoon Shin & Yeongjun Yeo & Jeong-Dong Lee, 2020. "Revitalizing the Concept of Public Procurement for Innovation (PPI) from a Systemic Perspective: Objectives, Policy Types, and Impact Mechanisms," Systemic Practice and Action Research, Springer, vol. 33(2), pages 187-211, April.
    19. Wei Shi Lim, 2001. "Producer-Supplier Contracts with Incomplete Information," Management Science, INFORMS, vol. 47(5), pages 709-715, May.
    20. Veldman, Jasper & Gaalman, Gerard, 2014. "A model of strategic product quality and process improvement incentives," International Journal of Production Economics, Elsevier, vol. 149(C), pages 202-210.
    21. Leif Hommen & Max Rolfstam, 2008. "Public procurement and innovation: towards a taxonomy," Journal of Public Procurement, Emerald Group Publishing Limited, vol. 8(3), pages 17-56, March.
    22. Uyarra, Elvira & Zabala-Iturriagagoitia, Jon Mikel & Flanagan, Kieron & Magro, Edurne, 2020. "Public procurement, innovation and industrial policy: Rationales, roles, capabilities and implementation," Research Policy, Elsevier, vol. 49(1).
    23. Yuting Zhang & Lan Xu, 2021. "Quality incentive contract design in government procurement of public services under dual asymmetric information," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(1), pages 34-44, January.
    24. Yan Wang & Lifan Yang & Enzo Russo & Domenico Graziano, 2021. "The Incentive Mechanism of Knowledge Sharing in Cross-Border Business Models Based on Digital Technologies," Sustainability, MDPI, vol. 13(22), pages 1-33, November.
    25. Poblete, Joaquín & Spulber, Daniel, 2017. "Managing innovation: Optimal incentive contracts for delegated R&D with double moral hazard," European Economic Review, Elsevier, vol. 95(C), pages 38-61.
    26. Albano, Gian Luigi & Cesi, Berardino & Iozzi, Alberto, 2017. "Public procurement with unverifiable quality: The case for discriminatory competitive procedures," Journal of Public Economics, Elsevier, vol. 145(C), pages 14-26.
    27. Laffont, Jean-Jacques & Tirole, Jean, 1987. "Auctioning Incentive Contracts," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 921-937, October.
    28. Edquist, Charles & Zabala-Iturriagagoitia, Jon Mikel, 2020. "Functional procurement for innovation, welfare and the environment," Papers in Innovation Studies 2020/1, Lund University, CIRCLE - Centre for Innovation Research, revised 19 Jul 2020.
    29. Alireza Talebi & Davar Rezania & George Bragues, 2022. "Value creation in public procurement of innovation: a case of engaging start-ups by a local government," Local Government Studies, Taylor & Francis Journals, vol. 48(4), pages 655-679, July.
    30. Tracy R. Lewis & David E.M. Sappington, 1991. "Incentives for Monitoring Quality," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 370-384, Autumn.
    31. Gérard P. Cachon & Fuqiang Zhang, 2006. "Procuring Fast Delivery: Sole Sourcing with Information Asymmetry," Management Science, INFORMS, vol. 52(6), pages 881-896, June.
    32. Chunyan Gao & T.C. Edwin Cheng & Houcai Shen & Liang Xu, 2016. "Incentives for quality improvement efforts coordination in supply chains with partial cost allocation contract," International Journal of Production Research, Taylor & Francis Journals, vol. 54(20), pages 6216-6231, October.
    33. Rodrigo Carril & Andres Gonzalez-Lira & Michael S. Walker, 2022. "Competition under incomplete contracts and the design of procurement policies," Economics Working Papers 1824, Department of Economics and Business, Universitat Pompeu Fabra.
    34. Yingsheng Su & Hongmei Guo & Xianyu Wang, 2014. "Incentive Contract in Supply Chain with Asymmetric Information," Discrete Dynamics in Nature and Society, Hindawi, vol. 2014, pages 1-6, January.
    35. Kiyoon Shin & Yeongjun Yeo & Jeong-Dong Lee, 2020. "Correction to: Revitalizing the Concept of Public Procurement for Innovation (PPI) from a Systemic Perspective: Objectives, Policy Types, and Impact Mechanisms," Systemic Practice and Action Research, Springer, vol. 33(2), pages 213-214, April.
    36. Rothwell, Roy, 1984. "Technology-Based Small Firms and Regional Innovation Potential: The Role of Public Procurement," Journal of Public Policy, Cambridge University Press, vol. 4(4), pages 307-332, November.
    37. Kiyoon Shin & Jeong-Dong Lee, 2022. "Impact of public procurement for innovation on firm productivity," Applied Economics Letters, Taylor & Francis Journals, vol. 29(11), pages 1016-1021, June.
    38. Cuihong Li & Laurens G. Debo, 2009. "Second Sourcing vs. Sole Sourcing with Capacity Investment and Asymmetric Information," Manufacturing & Service Operations Management, INFORMS, vol. 11(3), pages 448-470, July.
    39. Thomas P. Lyon, 2006. "Does Dual Sourcing Lower Procurement Costs?," Journal of Industrial Economics, Wiley Blackwell, vol. 54(2), pages 223-252, June.
    40. F. M. Scherer, 1964. "The Theory of Contractual Incentives for Cost Reduction," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 78(2), pages 257-280.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Edler, Jakob, 2023. "Demand, public procurement and transformation," Discussion Papers "Innovation Systems and Policy Analysis" 79, Fraunhofer Institute for Systems and Innovation Research (ISI).
    2. Congli Su & Mingxi Wang, 2022. "Quality incentive contract design in government procurement for innovation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3665-3684, December.
    3. Jakob Edler, 2023. "Demand, public procurement and transformation," MIOIR Working Paper Series 2023-03, The Manchester Institute of Innovation Research (MIoIR), The University of Manchester.
    4. Murat Kaya & Özalp Özer, 2009. "Quality risk in outsourcing: Noncontractible product quality and private quality cost information," Naval Research Logistics (NRL), John Wiley & Sons, vol. 56(7), pages 669-685, October.
    5. Yoo, Seung Ho & Cheong, Taesu, 2018. "Quality improvement incentive strategies in a supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 114(C), pages 331-342.
    6. Jessica Catalano & Francesco Giffoni & Paolo Castelnovo, 2021. "The impact of space procurement on suppliers: Evidence from Italy," Working Papers 202102, CSIL Centre for Industrial Studies.
    7. Krieger, Bastian & Zipperer, Vera, 2022. "Does green public procurement trigger environmental innovations?," Research Policy, Elsevier, vol. 51(6).
    8. Castelnovo, Paolo & Clò, Stefano & Florio, Massimo, 2023. "A quasi-experimental design to assess the innovative impact of public procurement: An application to the Italian space industry," Technovation, Elsevier, vol. 121(C).
    9. Miller, Fiona A. & Lehoux, Pascale, 2020. "The innovation impacts of public procurement offices: The case of healthcare procurement," Research Policy, Elsevier, vol. 49(7).
    10. Zabala-Iturriagagoitia, Jon Mikel & Aparicio, Juan & Ortiz, Lidia & Carayannis, Elias G. & Grigoroudis, Evangelos, 2021. "The productivity of national innovation systems in Europe: Catching up or falling behind?," Technovation, Elsevier, vol. 102(C).
    11. Uyarra, Elvira & Zabala-Iturriagagoitia, Jon Mikel & Flanagan, Kieron & Magro, Edurne, 2020. "Public procurement, innovation and industrial policy: Rationales, roles, capabilities and implementation," Research Policy, Elsevier, vol. 49(1).
    12. Chiappinelli, Olga & Giuffrida, Leonardo M. & Spagnolo, Giancarlo, 2023. "Public procurement as an innovation policy: Where do we stand?," ZEW Discussion Papers 23-002, ZEW - Leibniz Centre for European Economic Research.
    13. Dai, Xiaoyong & Li, Yanchao & Chen, Kaihua, 2021. "Direct demand-pull and indirect certification effects of public procurement for innovation," Technovation, Elsevier, vol. 101(C).
    14. Sang-Hyun Kim & Serguei Netessine, 2013. "Collaborative Cost Reduction and Component Procurement Under Information Asymmetry," Management Science, INFORMS, vol. 59(1), pages 189-206, November.
    15. Matthijs Jansen, 2022. "Legitimation and Effects of Mission-Oriented Innovation Policies: A Spillover Perspective," Hacienda Pública Española / Review of Public Economics, IEF, vol. 243(4), pages 7-28, December.
    16. Jing Mu & Jing Li & Yaze Li & Chao Liu, 2021. "The Dynamics of Brand-Driven Quality Improvement Decision-Making in Multi-Small-Supplier Agri-Food Supply Chain: The Case of China," Sustainability, MDPI, vol. 13(19), pages 1-17, September.
    17. Li Chen & Hau L. Lee, 2017. "Sourcing Under Supplier Responsibility Risk: The Effects of Certification, Audit, and Contingency Payment," Management Science, INFORMS, vol. 63(9), pages 2795-2812, September.
    18. Xin Yun & Hao Liu & Yi Li & Kin Keung Lai, 2023. "Contract design under asymmetric demand information for sustainable supply chain practices," Annals of Operations Research, Springer, vol. 324(1), pages 1429-1459, May.
    19. Dong Li & Nishant Mishra & Serguei Netessine, 2023. "Contracting for Product Support Under Information Asymmetry," Management Science, INFORMS, vol. 69(8), pages 4627-4645, August.
    20. Hao Zhang & Guangwen Kong & Sampath Rajagopalan, 2018. "Contract Design by Service Providers with Private Effort," Management Science, INFORMS, vol. 64(6), pages 2672-2689, June.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:15:y:2023:i:11:p:8773-:d:1158742. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.