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Optimal contract design for outsourcing: saving time and money

Author

Listed:
  • Xiaowei Zhu
  • Huimin Li
  • Dazhi Zheng

Abstract

We consider a company, or a buyer, that outsources her works to a supplier in order to reduce costs and time-to-market. A game theoretic model is used to design the optimal contracts between the buyer and the supplier under two types of information scenario. Under the full information case, the buyer shares her private cost information with the supplier. Under the asymmetric information case, the buyer does not share her private cost information with the supplier. In both cases, we find the optimum outsourcing price, outsourcing time, and retail price.

Suggested Citation

  • Xiaowei Zhu & Huimin Li & Dazhi Zheng, 2014. "Optimal contract design for outsourcing: saving time and money," International Journal of Business and Systems Research, Inderscience Enterprises Ltd, vol. 8(3), pages 278-294.
  • Handle: RePEc:ids:ijbsre:v:8:y:2014:i:3:p:278-294
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