Research On Adverse Selection And Moral Hazard Problems In Franchising

Franchising is a range of special organizational arrangements between the market and the enterprise. It connect with the franchisor and the franchisee by Contract.with the different ownership both sides, Franchising is the form of the market organization in the organizational.and the two sides of Franchising share a common set of trademarks and brand names, and thus it is the form of the business organization. It has been proved that this kind of special organization form has very powerful vitality,The contemporary franchising is found in America In the mid-19th century,and then Rapid development worldwide.Franchising now Favored by the world.Singapore, Malaysia view it as a national policy. The U.S. Department of Commerce view the franchise as the mainstream of the U.S. Economy, which is an important tool for the United States to achieve the strategy of global expansion, the reorganization of social resources and employment strategy and the adjustment strategy of economic and industrial structure.The development of franchising in China began in the late1980s, Although only a short span of20years,it has achieved impressive performance.According to the latest statistics of the Franchise Association, the number of franchise system has exceeded4500, the total of Franchisee is more than400,000, the formats covered more than70, and provide more than5million jobs in2010.But, The problems of the franchise in our country can not be underestimated. in the recent years, the Case about Our franchise is increasing, With the continuous development of franchising in China,Opportunistic behavior in the franchise also hit a trends of variety,covert and complex, Seriously affect the long-term development of the franchise system. How to correctly understand and effectively address these opportunistic behavior is the key to the healthy development of our franchise.Since the introduction of franchising in China is late, at present the literature of the franchise is still relatively less in China, particularly the research of the principal-agent problem on the franchise is more less.Most of the literature are descriptive, conceptual. Through the review of the relevant literature in this paper, On the basis of the predecessors’ research methods, put the franchise into the analytical framework of information economics. Using the game theory analysis tools. Respectively, the adverse selection model,complete information static game model and repeated game model was established to study the problem of "adverse selection" and "moral hazard" in the franchise,which is because of information asymmetry. Based on the model, analyse the produce process, reasons and influence factors of the opportunistic behavior, and then advances the corresponding mitigation measures.This article altogether consists of five parts, the first part is the introduction. This part is mainly about the topic background, research significance, the thesis framework, research methods and innovation of this article. The second part is the Overview of the franchise. at first this part give the definition of franchising and the developing history of franchise in domestic and international, then summarize and comb the related research literature of franchise at home and abroad.The third part mainly analyse the "adverse selection" problem in franchise. Comb and summarize the specific form of asymmetric information in franchisingbefore signing the contract, Analyze their root causes, on this basis, building adverse selection model to analyze the process of adverse selection between the franchisor and franchisee. finally put forward the hedging mechanism of adverse selection problem in franchising, mainly including signals transmission model and differentiation model.The fourth part mainly analyse about "double moral hazard" problem in franchise. this chapter is the focus of this article, at first summarizes the special manifestation of the moral risk in franchising, And then build a complete information static game model and repeated game model to analyze the moral hazard problem between the franchisor and franchisee, finally put forward to the countermeasures and Suggestions which could alleviate the moral hazard problems.The fifth part is case analysis. This part analyzes the successful franchise in reality system (KFC) and the unsuccessful franchise system (chanzui duck), through the analysis the way them alleviate the problem of information asymmetry.The sixth part is summary. Summarizes the main content of above,and the deficiencies of this research.The deficiency of this paper:(1) in order to facilitate in the modeling and calculation, some assumptions are made for several models when building model, some of the assumptions may be more demanding;(2) since time is limited, this article only analyse the opportunistic behaviour of both sides, but no further for a variety of opportunism behaviors in the franchising.(3) due to the limited professional level and ability, on the depth of understanding of the game theory may be not enough, for some game model without further deepen the processing.