Study On The Problem Of Contract Designing In Manufacturing Outsourcing

In manufacturing outsourcing, there exists a classical moral hazard problem. Usually, the outsourcer (also called a principle) is disadvantaged in collecting information as she doesn't know how efforts the contractor (also called an agent) has taken in product quality, schedule and delivery period. However, the contractor has an advantage because he is clear about this private information and often keeps it secret for personal interest. The interests of the principle and the contractor are inconsistent: the outsourcer hopes the agent provides qualified products in time at a low price; nevertheless the contractor hopes to get more income with less work. As a result, principle-agent relation comes into being between outsourcer and contractor.This study, on the basis of existing literatures, is mainly about principle-agent problem in manufacturing outsourcing under asymmetric information. Principle-agent models under asymmetric information are proposed and analyzed. It discusses how to design an incentive mechanism to induce contractor to work hard in order to maximize outsourcer's return. The study mainly includes two aspects:Firstly, On the basis of existing literatures in products' quality, this thesis introduces delivery performance on time. Taking different requirements for quality and delivery performance on time by different products, this thesis establishes joint decision-making principle-agent models on products' quality and delivery performance. The joint decision-making model is presented in view of three payment mechanisms, namely fixed payment, bonus and penalty mechanism.Results show that the optimal contract is a proper combination of the three mechanisms. Furthermore, results indicate that the three mechanisms match each other in a certain degree: The more the fixed payment, the higher the penalty and the lower the bonus; on the other hand, the lower the fixed payment, the less the penalty and the more the bonus. Finally, the results show that the outsourcer can motivate contractor better by allocating the weights of products' quality and delivery according to task feature.Secondly, this thesis also studies when the outsourcer should help the contractor to improve products' quality in manufacturing outsourcing, including providing technology support or not. Two principle-agent models are presented with the three pay mechanisms. By comparison, the two mechanisms are analyzed.Results show that the best incentive mechanism is to combine the three together no matter the outsourcer provides technical support or not and higher fixed payment leads to lower bonus and higher penalty. If the outsourcer provides technical support, she can reduce fixed payment or increase the penalty. If the outsourcer provides technical support, the outsourcer's income will increase, the contractor's income will be same as before. Both participators' incomes obtain Pareto improvement.