Design And Optimization Of Flexible Contract Based On Fairness And Bounded Rationality

Traditional contract theory is based on the ecnomic men's selfishness, which means the decision makers make decisions in order to maximize the own profit, ignoring the assumed condition of fairness and bounded rationality theory. We add the fairness and bounded rationality into the research, it is hot topic that the behavioral economics results are applied to the traditional contract theory, some researchers investigate the fairness or bounded rationality recently, few papers jointly analyze these.The paper focuses on the revenue-sharing contract and buy-back contract. It refers the F-S model as our fairness model and Logit model as our bounded rationality model. we set up the proper model combining the traditional contract theory and game theory in order to analyze deeply for decision makers who are with fairness and bounded rationality. Furthmore we conduct numerical analysis by matlab software. We conclude that fairness and bounded rationality have no impact on the retailers'order quantity whatever the retailer is stronger or the supplier is stronger, the scope of the flexible contracts is reduced because of fairness. When the bounded rationality is fixed, the flexible contracts'parameters are increase or decrease with the fairness; when the fairness is fixed, the flexible contracts'parameters are decrease or increase with the bounded rationality. We also study the supplier's choice of the flexible contracts when order quantity is fixed.