IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v7y2015i2p2145-2160d45943.html
   My bibliography  Save this article

A Study on Project Duration Incentives in a Retail Apparel Franchise

Author

Listed:
  • Yichen Peng

    (School of Business Administration, Nanjing University of Finance & Economics, Nanjing 210046, China
    School of Management and Engineering, Nanjing University, Nanjing 210093, China)

  • Jing Zhou

    (School of Management and Engineering, Nanjing University, Nanjing 210093, China)

  • Xiaoling Wu

    (School of Management and Engineering, Nanjing University, Nanjing 210093, China
    School of Economics and Management, Nanjing Tech University, Nanjing 210009, China)

Abstract

This paper studies the impact on project duration of different forms of over-confidence among general contractors executing such projects, in the context of retail apparel franchises. It goes on to consider the design of relevant incentives and, in particular, a compensation mechanism included in the initial contract that covers the event of contractor dismissal. This mechanism is examined as a means of hedging risk arising from the behavior of the principal. This includes a study of a two-way risk avoidance strategy, which is intended to make up for a shortfall in this regard in the existing literature. Outcomes derived from this research include the conclusion that different levels of confidence can have various impacts on optimal incentive coefficients and the effort level extracted from agents, thereby affecting the ultimate configuration of an optimal contract. Introducing a compensation mechanism covering the event of dismissal can serve to diminish the risk of an agent breaching their contract. This paper applies the concept of bounded rationality to a principal-agent model, ensuring conclusions that are attuned to reality.

Suggested Citation

  • Yichen Peng & Jing Zhou & Xiaoling Wu, 2015. "A Study on Project Duration Incentives in a Retail Apparel Franchise," Sustainability, MDPI, vol. 7(2), pages 1-16, February.
    • Handle: RePEc:gam:jsusta:v:7:y:2015:i:2:p:2145-2160:d:45943
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/7/2/2145/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/7/2/2145/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Shtub, Avraham & LeBlanc, Larry J. & Cai, Ziyong, 1996. "Scheduling programs with repetitive projects: A comparison of a simulated annealing, a genetic and a pair-wise swap algorithm," European Journal of Operational Research, Elsevier, vol. 88(1), pages 124-138, January.
    2. Mrinal Ghosh & George John, 2000. "Experimental Evidence for Agency Models of Salesforce Compensation," Marketing Science, INFORMS, vol. 19(4), pages 348-365, August.
    3. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    4. Werner F. M. De Bondt & Richard H. Thaler, 1994. "Financial Decision-Making in Markets and Firms: A Behavioral Perspective," NBER Working Papers 4777, National Bureau of Economic Research, Inc.
    5. Etgar, Ran & Shtub, Avraham & LeBlanc, Larry J., 1997. "Scheduling projects to maximize net present value -- the case of time-dependent, contingent cash flows," European Journal of Operational Research, Elsevier, vol. 96(1), pages 90-96, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tsan-Ming Choi & Yongjian Li, 2015. "Sustainability in Fashion Business Operations," Sustainability, MDPI, vol. 7(11), pages 1-7, November.
    2. Yue Chen & Sai-Ho Chung & Shu Guo, 2020. "Franchising contracts in fashion supply chain operations: models, practices, and real case study," Annals of Operations Research, Springer, vol. 291(1), pages 83-128, August.

    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. Freeman, Steven F., 1997. "Good decisions : reconciling human rationality, evolution, and ethics," Working papers WP 3962-97., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    2. Brice Corgnet & Roberto Hernán-González, 2019. "Revisiting the Trade-off Between Risk and Incentives: The Shocking Effect of Random Shocks?," Management Science, INFORMS, vol. 65(3), pages 1096-1114, March.
    3. Gneezy, U., 1996. "Probability Judgements in Multi-Stage Problems : Experimental Evidence of Systematic Biases," Discussion Paper 1996-01, Tilburg University, Center for Economic Research.
    4. Hartmann, Sönke & Briskorn, Dirk, 2010. "A survey of variants and extensions of the resource-constrained project scheduling problem," European Journal of Operational Research, Elsevier, vol. 207(1), pages 1-14, November.
    5. Markus Glaser & Martin Weber, 2007. "Overconfidence and trading volume," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 32(1), pages 1-36, June.
    6. He, Zhengwen & Liu, Renjing & Jia, Tao, 2012. "Metaheuristics for multi-mode capital-constrained project payment scheduling," European Journal of Operational Research, Elsevier, vol. 223(3), pages 605-613.
    7. Randolph Sloof & C. Mirjam van Praag, 2008. "The Effect of Noise in a Performance Measure on Work Motivation," Tinbergen Institute Discussion Papers 08-074/1, Tinbergen Institute.
    8. Robert Meyer & Joachim Vosgerau & Vishal Singh & Joel Urbany & Gal Zauberman & Michael Norton & Tony Cui & Brian Ratchford & Alessandro Acquisti & David Bell & Barbara Kahn, 2010. "Behavioral research and empirical modeling of marketing channels: Implications for both fields and a call for future research," Marketing Letters, Springer, vol. 21(3), pages 301-315, September.
    9. Teck H. Ho & Noah Lim & Colin Camerer, 2005. "Modeling the Psychology of Consumer and Firm Behavior with Behavioral Economics," Levine's Bibliography 784828000000000476, UCLA Department of Economics.
    10. Rajdeep Kumar Raut & Niladri Das & Ramkrishna Mishra, 2020. "Behaviour of Individual Investors in Stock Market Trading: Evidence from India," Global Business Review, International Management Institute, vol. 21(3), pages 818-833, June.
    11. Sloof, Randolph & van Praag, C. Mirjam, 2010. "The effect of noise in a performance measure on work motivation: A real effort laboratory experiment," Labour Economics, Elsevier, vol. 17(5), pages 751-765, October.
    12. Hartmann, Sönke & Briskorn, Dirk, 2008. "A survey of variants and extensions of the resource-constrained project scheduling problem," Working Paper Series 02/2008, Hamburg School of Business Administration (HSBA).
    13. Hyytinen, Ari & Pajarinen, Mika, 2005. "Why Are All New Entrepreneurs Better Than Average? Evidence from Subjective Failure Rate Expectations," Discussion Papers 987, The Research Institute of the Finnish Economy.
    14. He, Zhengwen & Wang, Nengmin & Jia, Tao & Xu, Yu, 2009. "Simulated annealing and tabu search for multi-mode project payment scheduling," European Journal of Operational Research, Elsevier, vol. 198(3), pages 688-696, November.
    15. Zhengwen He & Nengmin Wang & Pengxiang Li, 2014. "Simulated annealing for financing cost distribution based project payment scheduling from a joint perspective," Annals of Operations Research, Springer, vol. 213(1), pages 203-220, February.
    16. Pereira Reichhardt, Joaquín & Iqbal, Tabassum, 2014. "Investment Decisions: Are we fully-Rational?," MPRA Paper 57686, University Library of Munich, Germany.
    17. Stracca, Livio, 2004. "Behavioral finance and asset prices: Where do we stand?," Journal of Economic Psychology, Elsevier, vol. 25(3), pages 373-405, June.
    18. Seow Eng Ong & Davin Wang & Calvin Chua, 2023. "Disruptive Innovation and Real Estate Agency: The Disruptee Strikes Back," The Journal of Real Estate Finance and Economics, Springer, vol. 67(2), pages 287-317, August.
    19. Herrmann, Tabea & Hübler, Olaf & Menkhoff, Lukas & Schmidt, Ulrich, 2016. "Allais for the poor," Kiel Working Papers 2036, Kiel Institute for the World Economy (IfW Kiel).
    20. Christiane Goodfellow & Dirk Schiereck & Steffen Wippler, 2013. "Are behavioural finance equity funds a superior investment? A note on fund performance and market efficiency," Journal of Asset Management, Palgrave Macmillan, vol. 14(2), pages 111-119, April.

    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:7:y:2015:i:2:p:2145-2160:d:45943. 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.