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Principal‐agent maintenance problem

Author

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  • I. Krinsky
  • A. Mehrez

Abstract

This article studies a maintenance problem that is applicable for multidivision organizations on lessee‐lessor relationships. It is assumed that the parties sign a contract for a fixed time period. Within the period, the lessor is allowed to use the equipment supplied by the lessee. The availability of the equipment that may suffer from breakdown depends on the preventive maintenance policy adopted by the lessor. The properties of this policy as well as other features of the problem are analyzed using a one‐period model that takes into account the economic value of the contract as perceived by the lessor and the lessee. The optimal contracting arrangements are analyzed from the perspective of efficient risk sharing and incentive provisions.

Suggested Citation

  • I. Krinsky & A. Mehrez, 1989. "Principal‐agent maintenance problem," Naval Research Logistics (NRL), John Wiley & Sons, vol. 36(6), pages 817-828, December.
    • Handle: RePEc:wly:navres:v:36:y:1989:i:6:p:817-828
    DOI: 10.1002/1520-6750(198912)36:63.0.CO;2-C
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    References listed on IDEAS

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    1. Dror Zuckerman, 1986. "Optimal maintenance policy for stochastically failing equipment: A diffusion approximation," Naval Research Logistics Quarterly, John Wiley & Sons, vol. 33(3), pages 469-477, August.
    2. Toshio Nakagawa, 1984. "Periodic inspection policy with preventive maintenance," Naval Research Logistics Quarterly, John Wiley & Sons, vol. 31(1), pages 33-40, March.
    3. Wolfson, Mark A, 1985. "Tax, Incentive, and Risk-sharing Issues in the Allocation of Property Rights: The Generalized Lease-or-Buy Problem," The Journal of Business, University of Chicago Press, vol. 58(2), pages 159-171, April.
    4. I. Brosh & E. Shlifer & Y. Zeira, 1975. "Optimal Maintenance Policy for a Fleet of Vehicles," Management Science, INFORMS, vol. 22(4), pages 401-410, December.
    5. Oliver D. Hart, 1983. "Optimal Labour Contracts under Asymmetric Information: An Introduction," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 50(1), pages 3-35.
    6. Toshio Nakagawa, 1986. "Modified discrete preventive maintenance policies," Naval Research Logistics Quarterly, John Wiley & Sons, vol. 33(4), pages 703-715, November.
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