Title: Optimal contract design for outsourcing: saving time and money

Authors: Xiaowei Zhu; Huimin Li; Dazhi Zheng

Addresses: College of Business and Public Affairs, West Chester University of Pennsylvania, West Chester, PA 19383, USA ' College of Business and Public Affairs, West Chester University of Pennsylvania, West Chester, PA 19383, USA ' College of Business and Public Affairs, West Chester University of Pennsylvania, West Chester, PA 19383, USA

Abstract: We consider a company, or a buyer, that outsources her works to a supplier in order to reduce costs and time-to-market. A game theoretic model is used to design the optimal contracts between the buyer and the supplier under two types of information scenario. Under the full information case, the buyer shares her private cost information with the supplier. Under the asymmetric information case, the buyer does not share her private cost information with the supplier. In both cases, we find the optimum outsourcing price, outsourcing time, and retail price.

Keywords: outsourcing pricing; outsourcing time; contract design; game theory; optimal contracts; retail price; full information; asymmetric information.

DOI: 10.1504/IJBSR.2014.063936

International Journal of Business and Systems Research, 2014 Vol.8 No.3, pp.278 - 294

Received: 23 Sep 2013
Accepted: 29 Jan 2014
Published online: 30 Aug 2014 *

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