IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v56y2010i5p849-863.html
   My bibliography  Save this article

Contracting for Collaborative Services

Author

Listed:
  • Guillaume Roels

    () (UCLA Anderson School of Management, University of California, Los Angeles, Los Angeles, California 90095)

  • Uday S. Karmarkar

    () (UCLA Anderson School of Management, University of California, Los Angeles, Los Angeles, California 90095)

  • Scott Carr

    () (LECG, Washington, DC 20006)

Abstract

In this paper, we analyze the contracting issues that arise in collaborative services, such as consulting, financial planning, and information technology outsourcing. In particular, we investigate how the choice of contract type--among fixed-fee, time-and-materials, and performance-based contracts--is driven by the service environment characteristics. We find that fixed-fee contracts contingent on performance are preferred when the service output is more sensitive to the vendor's effort, that time-and-materials contracts are optimal when the output is more sensitive to the buyer's effort, and that performance-based contracts dominate when the output is equally sensitive to both the buyer's and the vendor's inputs. We also discuss how the performance of these contracts is affected with output uncertainty, process improvement opportunities, and the involvement of multiple buyers and vendors in the joint-production process. Our model highlights the trade-offs underlying the choice of contracts in a collaborative service environment and identifies service process design changes that improve contract efficiency.

Suggested Citation

  • Guillaume Roels & Uday S. Karmarkar & Scott Carr, 2010. "Contracting for Collaborative Services," Management Science, INFORMS, vol. 56(5), pages 849-863, May.
  • Handle: RePEc:inm:ormnsc:v:56:y:2010:i:5:p:849-863
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.1100.1146
    Download Restriction: no

    References listed on IDEAS

    as
    1. 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.
    2. Bajari, Patrick & Tadelis, Steven, 2001. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 387-407, Autumn.
    3. Chong-En Bai & Zhigang Tao & Changqi Wu, 2004. "Revenue Sharing and Control Rights in Team Production: Theories and Evidence from Joint Ventures," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 277-305, Summer.
    4. 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.
    5. Arturs Kalnins, 2004. "Relationships and Hybrid Contracts: An Analysis of Contract Choice in Information Technology," Journal of Law, Economics, and Organization, Oxford University Press, vol. 20(1), pages 207-229, April.
    6. Eric Maskin & Jean Tirole, 1999. "Unforeseen Contingencies and Incomplete Contracts," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 83-114.
    7. Ananth V. Iyer & Leroy B. Schwarz & Stefanos A. Zenios, 2005. "A Principal-Agent Model for Product Specification and Production," Management Science, INFORMS, vol. 51(1), pages 106-119, January.
    8. Robert Gibbons, 2005. "Incentives Between Firms (and Within)," Management Science, INFORMS, vol. 51(1), pages 2-17, January.
    9. George Baker, 2002. "Distortion and Risk in Optimal Incentive Contracts," Journal of Human Resources, University of Wisconsin Press, vol. 37(4), pages 728-751.
    10. Kenneth S. Corts, 2004. "The Effect of Repeated Interaction on Contract Choice: Evidence from Offshore Drilling," Journal of Law, Economics, and Organization, Oxford University Press, vol. 20(1), pages 230-260, April.
    11. Corbett, Charles J. & DeCroix, Gregory A. & Ha, Albert Y., 2005. "Optimal shared-savings contracts in supply chains: Linear contracts and double moral hazard," European Journal of Operational Research, Elsevier, vol. 163(3), pages 653-667, June.
    12. Panagiotis Kouvelis & Martin A. Lariviere, 2000. "Decentralizing Cross-Functional Decisions: Coordination Through Internal Markets," Management Science, INFORMS, vol. 46(8), pages 1049-1058, August.
    13. Daniel F. Rubinfeld & Suzanne Scotchmer, 1993. "Contingent Fees for Attorneys: An Economic Analysis," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 343-356, Autumn.
    14. Abhijit V. Banerjee & Esther Duflo, 2000. "Reputation Effects and the Limits of Contracting: A Study of the Indian Software Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 115(3), pages 989-1017.
    15. Anandasivam Gopal & Konduru Sivaramakrishnan & M. S. Krishnan & Tridas Mukhopadhyay, 2003. "Contracts in Offshore Software Development: An Empirical Analysis," Management Science, INFORMS, vol. 49(12), pages 1671-1683, December.
    16. Haim Levy, 1992. "Stochastic Dominance and Expected Utility: Survey and Analysis," Management Science, INFORMS, vol. 38(4), pages 555-593, April.
    17. Chisholm, Darlene C, 1997. "Profit-Sharing versus Fixed-Payment Contracts: Evidence from the Motion Pictures Industry," Journal of Law, Economics, and Organization, Oxford University Press, vol. 13(1), pages 169-201, April.
    18. Georgia Perakis & Guillaume Roels, 2007. "The Price of Anarchy in Supply Chains: Quantifying the Efficiency of Price-Only Contracts," Management Science, INFORMS, vol. 53(8), pages 1249-1268, August.
    19. Erica L. Plambeck & Terry A. Taylor, 2006. "Partnership in a Dynamic Production System with Unobservable Actions and Noncontractible Output," Management Science, INFORMS, vol. 52(10), pages 1509-1527, October.
    20. Sameer Hasija & Edieal J. Pinker & Robert A. Shumsky, 2008. "Call Center Outsourcing Contracts Under Information Asymmetry," Management Science, INFORMS, vol. 54(4), pages 793-807, April.
    21. Kim, Son Ku & Wang, Susheng, 1998. "Linear Contracts and the Double Moral-Hazard," Journal of Economic Theory, Elsevier, vol. 82(2), pages 342-378, October.
    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. repec:spr:annopr:v:240:y:2016:i:2:d:10.1007_s10479-013-1505-2 is not listed on IDEAS
    2. Moussawi-Haidar, Lama & Çömez-Dolgan, Nagihan, 2017. "Percentage rent contracts between co-stores," European Journal of Operational Research, Elsevier, vol. 258(3), pages 912-925.
    3. repec:eee:jeborg:v:142:y:2017:i:c:p:320-330 is not listed on IDEAS
    4. Chen Liang & Yili Hong & Bin Gu, 2017. "Home Bias in Global Employment," Working Papers 17-06, NET Institute.
    5. Tian Chan & Francis de Véricourt & Omar Besbes, 2014. "Contracting in medical equipment maintenance services: An empirical investigation," ESMT Research Working Papers ESMT-14-05, ESMT European School of Management and Technology.
    6. Vinogradov, D & Shadrina, E, 2016. "Public-Private Partnerships as Collaborative Projects: testing the theory on cases from EU and Russia," Essex Finance Centre Working Papers 16024, University of Essex, Essex Business School.
    7. Przemyslaw Hensel, 2013. "Doradztwo jako temat badan naukowych – przegl¹d wspolczesnej literatury. (Consulting as a subject of study – a review of a recent literature.)," Problemy Zarzadzania, University of Warsaw, Faculty of Management, vol. 11(43), pages 9-24.
    8. Kohtamäki, Marko & Partanen, Jukka, 2016. "Co-creating value from knowledge-intensive business services in manufacturing firms: The moderating role of relationship learning in supplier–customer interactions," Journal of Business Research, Elsevier, vol. 69(7), pages 2498-2506.
    9. Oh, Sechan & Rhodes, James & Strong, Ray, 2016. "Impact of cost uncertainty on pricing decisions under risk aversion," European Journal of Operational Research, Elsevier, vol. 253(1), pages 144-153.
    10. Ma, Peng & Wang, Haiyan & Shang, Jennifer, 2013. "Supply chain channel strategies with quality and marketing effort-dependent demand," International Journal of Production Economics, Elsevier, vol. 144(2), pages 572-581.
    11. repec:bla:jscmgt:v:53:y:2017:i:3:p:60-75 is not listed on IDEAS
    12. Wang, Yulan & Wallace, Stein W. & Shen, Bin & Choi, Tsan-Ming, 2015. "Service supply chain management: A review of operational models," European Journal of Operational Research, Elsevier, vol. 247(3), pages 685-698.
    13. Chen Liang & Yili Hong & Bin Gu, 2016. "Effects of IT-enabled Monitoring on Labor Contracting in Online Platforms: Evidence from a Natural Experiment," Working Papers 16-01, NET Institute.
    14. Ma, Peng & Wang, Haiyan & Shang, Jennifer, 2013. "Contract design for two-stage supply chain coordination: Integrating manufacturer-quality and retailer-marketing efforts," International Journal of Production Economics, Elsevier, vol. 146(2), pages 745-755.
    15. White, Sheneeta W. & Badinelli, Ralph D., 2012. "A model for efficiency-based resource integration in services," European Journal of Operational Research, Elsevier, vol. 217(2), pages 439-447.

    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:inm:ormnsc:v:56:y:2010:i:5:p:849-863. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc). General contact details of provider: http://edirc.repec.org/data/inforea.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.