Research Of Outsourcing Incentive Model Considering Risk Preference And Moral Hazard

Incentive of outsourcing is important topic of outsourcing management.In the paper,general outsourcing incentive model considering risk preference and moral hazard is extended and modified on the basis of literature review of incentive,outsourcing and is organized and analyzed respectively from single moral hazard perspective and bilateral moral hazard perspective.Furthermore,bilateral game strategies upon on risk attitude are discussed.Incentive of outsourcing of single moral hazard always focuses on revenue sharing ratio and effort level to realize game equilibrium of each other's revenue dynamically under complex circumstance.The main research conclusions are as following: Firstly,it's about the relationship between revenue sharing ration and optimal effort level.The more influence that the environment affects the production output,the higher agent's cost ratio is,the bigger the agent's risk aversion is,the lower the output sharing ratio and optimal effort level will become.At this time,motivation effect will be worse and the output's quality seems to be more difficult to be guaranteed.Secondly,it's related to both revenues.The side that owns higher risk aversion degree will obtain less revenue while the other side's risk aversion remains unchanged,yet,he also gains other compensations.Both revenues will decline if the agent's cost ratio increases.Thirdly,agent cost will increase when one side's risk aversion remains unchanged while the other side's risk aversion rises.Efficiency of outsourcing will reduce.Fourthly,it is about the balance mechanism.It is considered that the principal and the agent can obtain game equilibrium in the outsourcing incentive model of single moral hazard.Incentive model of outsourcing of bilateral moral hazard is more complicated than the model of single moral hazard.It not only takes both sides' effort level but also output elasticity into consideration.The main research conclusions are as following: Firstly,when both are risk neutral,the sharing ratio and the effort level and the variable revenue are determined by respective output elasticity.The higher output elasticity side will be acquisition more than 50% sharing ratio and more variable revenue and more effort level.Especially each will get 50% sharing ratio and the same variable revenue and the same effort level,when both output elasticity equals.Secondly,when the principal and the agent's output elasticity equal,compared with his counterpart,the one who owns the higher risk aversion degree will gain less effort level,less variable revenue and lower than 50% sharing ratio.For certain part,revenue is negatively related with risk aversion degree while the other part's risk aversion degree remains unchanged.Especially,each will obtain 50% sharing ratio and same effort level and same variable revenue when both output elasticity equal.Thirdly,when the principal and the agent's output elasticity are different,generally speaking,if both risk aversion degree equal,the side that owns higher output elasticity will seek more revenue;revenue is negatively related with risk aversion degree while the other part's risk aversion degree remains unchanged;risk aversion degree will adjust the effect that the more elasticity is,the more revenue is;portfolio of lower risk aversion degree and higher output elasticity can bring more variable revenue.Fourthly,(risk neutral,risk neutral)is the game equilibrium of the principal and the agent's game of risk attitude theoretically.When both are risk neutral,equation of both outputs elasticity is the condition to realize equilibrium of game upon on output elasticity.When both are risk aversion and the output elasticity equal,equation of both risk aversion degree is the condition to realize equilibrium of game upon on risk aversion degree.The paper also comes up with four managerial insights to try to give instructions for managers and practitioners of outsourcing.Firstly,for the principal and the agent,both should approach the risk objectively and rationally.Both of them cannot over-react with the risk or cannot excessively avoid risk.Secondly,the principal should make evaluation of agent's risk attitude and professional capacity.Thirdly,both should improve and enhance each technical competence.Fourthly,each should strengthen cooperation and reinforce information sharing during outsourcing.