The Analyze Of The Design Of Quality Control Contracts Under Asymmetric Information Condition In The Supply Chain Process

Inefficient functioning of markets and restrictions on competition are just a few of thenegative results of information asymmetry. The problem of information asymmetry becomesespecially important and gets scientific and practical significance, raises the need to developeconomic mechanism aimed at mitigating the effects of asymmetry information and increasingthe efficiency of the industry markets.Problems of information and contracting are common in industrial value chains in manydeveloping countries as well as in Azerbaijan. The dissolution of Soviet Union resulted inpolitical chaos, economic paralysis and social collapse in post-Soviet republics, includingAzerbaijan. In order to create an innovative economy, the relations between science and themanufacturing sector will be reinforced and necessary procedures put in place to conductscientific research in accordance with market demand.However, when problems of information and contracting are present, traditionaldevelopment interventions like introducing new technologies and providing extension servicesmay not be sufficient for suppliers as well as manufacturers to realize higher earnings from theirproducts. These problems can make markets work inefficiently by deterring buyers or sellersfrom entering a market, breaking down trust between buyers and sellers, and forcing marketparticipants to investment time and money to verify product quality and traders’ reputations, as aresult it can reduce the profitability of participating in a value chain for all participants.US policymakers together with Azerbaijani research authorities have been engaged formany years in developing the industrial sectors in Azerbaijan with the goals of improving marketcoordination and raising incomes. The results presented in those researches, that problems ofinformation and contracting are key factors that, why suppliers continue to have difficultiesaccessing new markets and buyers, even after previous development interventions. Based onabove mentioned investigation results, it is strongly underlined that, to achieve prioritydevelopment goals and to ensure sustainable economic development, special attention must bepaid to supply contracting studies, create mechanisms and relevant tools available to addressproblems of information, including incentive contracts, protection of local market from unfaircompetition to correct for these problems in the Azerbaijani context.In this thesis it is aimed to develop a model, which will allow under the condition of informationasymmetry about the supplied item’s quality, design an optimal contract where, the expected payoff of the buyer will maximized and enforce the supplier improve the quality of the suppliedproducts. As well as design an incentive contract scheme, where both participants will be avoidopportunistic behaviors. Using of the optimal control theory and principal agent theory analyzeand describe the principal and agents decision on quality and study the influence of informationalasymmetry to players. We hope the results will be auxiliary presented in this policy brief willhelp convince policymakers of the need to address problems of information and contracting intheir agricultural development activities...