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Optimal service contract under cost information symmetry/asymmetry

Author

Listed:
  • Xiang Li

    (College of Economic and Social Development, Nankai University, Tianjin 300071, P.R. China)

  • Yongjian Li

    (Businees School, Nankai University, Tianjin 300071, P.R. China)

Abstract

Service outsourcing has become a hot topic in both industry and academy. This paper studies the contract design problems for a service seller who consigns the service to a vendor. The vendor’s service cost parameter may or may not completely be known by the seller, which constitutes the cases of information symmetry or asymmetry. In both cases, the optimal contracts are developed to maximize the seller’s expected profit, with the consideration of contractible and non-contractible service qualities. The properties of the contract parameters are explored, along with the analysis of information rent and value of cost information. Moreover, we find that non-contractible service quality is not an issue for the service seller under cost information symmetry since a revenue-sharing type of contract can guarantee the seller’s profit. However, this result does not hold under cost information asymmetry and thus non-contractibility of the service quality indeed costs the seller.

Suggested Citation

  • Xiang Li & Yongjian Li, 2016. "Optimal service contract under cost information symmetry/asymmetry," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 67(2), pages 269-279, February.
    • Handle: RePEc:pal:jorsoc:v:67:y:2016:i:2:p:269-279
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    Citations

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    Cited by:

    1. Rahimi-Ghahroodi, S. & Al Hanbali, A. & Zijm, W.H.M. & Timmer, J.B., 2020. "Multi-resource emergency supply contracts with asymmetric information in the after-sales services," International Journal of Production Economics, Elsevier, vol. 229(C).
    2. Liu, Chao & Lv, Jingyu & Hou, Ping & Lu, Danrong, 2023. "Disclosing products’ freshness level as a non-contractible quality: Optimal logistics service contracts in the fresh products supply chain," European Journal of Operational Research, Elsevier, vol. 307(3), pages 1085-1102.
    3. Matsui, Kenji, 2019. "A supply chain member should set its margin later if another member's cost is highly uncertain," European Journal of Operational Research, Elsevier, vol. 275(1), pages 127-138.
    4. Wang, Di & Liu, Weihua & Shen, Xinran & Wei, Wanying, 2019. "Service order allocation under uncertain demand: Risk aversion, peer competition, and relationship strength," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 130(C), pages 293-311.
    5. Weihua Liu & Wanying Wei & Xiaoyu Yan & Di Wang, 2019. "Supply Contract Design with Asymmetric Corporate Social Responsibility Cost Information in Service Supply Chain," Sustainability, MDPI, vol. 11(5), pages 1-24, March.
    6. Di Wang & Weihua Liu & Yanjie Liang & Shuang Wei, 2023. "Decision optimization in service supply chain: the impact of demand and supply-driven data value and altruistic behavior," Annals of Operations Research, Springer, vol. 324(1), pages 971-992, May.
    7. Yanfei Lan & Zhibing Liu & Baozhuang Niu, 2017. "Pricing and Design of After-Sales Service Contract: The Value of Mining Asymmetric Sales Cost Information," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 34(01), pages 1-25, February.
    8. Liu, Weihua & Wang, Di & Shen, Xinran & Yan, Xiaoyu & Wei, Wanying, 2018. "The impacts of distributional and peer-induced fairness concerns on the decision-making of order allocation in logistics service supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 116(C), pages 102-122.
    9. Mahadevan, B. & Hazra, Jishnu & Jain, Tarun, 2017. "Services outsourcing under asymmetric cost information," European Journal of Operational Research, Elsevier, vol. 257(2), pages 456-467.
    10. Liu, Weihua & Yan, Xiaoyu & Wei, Wanying & Xie, Dong, 2019. "Pricing decisions for service platform with provider’s threshold participating quantity, value-added service and matching ability," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 122(C), pages 410-432.

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