Optimal Contract Orders and Relationship-Specific Investments in Vertical Organizations
|Title:||Optimal Contract Orders and Relationship-Specific Investments in Vertical Organizations||Authors:||Parlane, Sarah
|Permanent link:||http://hdl.handle.net/10197/4811||Date:||Oct-2013||Abstract:||This paper characterizes the optimal contracts issued to suppliers when delivery is subject to disruptions and when they can invest to reduce such a risk. When investment is contractible dual sourcing is generally optimal because it reduces the risk of disruption. The manufacturer (buyer) either issues symmetric contracts or selects one supplier as a major provider who invests while the buffer supplier does not. An increased reliance on single sourcing or on a major supplier is optimal under moral hazard. Indeed, we show that order consolidation increases the manufacturer’s profits because it serves as an incentive device in inducing investment.||Funding Details:||Not applicable||Type of material:||Working Paper||Publisher:||University College Dublin. School of Economics||Keywords:||Moral Hazard; Vertical Organization; Supply Base Management; Contract Order Size; Relationship-specific Investment; Strategic Outsourcing||Other versions:||http://www.ucd.ie/t4cms/WP13_16.pdf||Language:||en||Status of Item:||Not peer reviewed|
|Appears in Collections:||Economics Working Papers & Policy Papers|
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