Contract design and the control of quality in a conflictual environment

Diane J. Reyniers, Charles S. Tapiero

Research output: Contribution to journalArticle

Abstract

This paper provides an approach to quality supply by a supplier and quality inspection by a producer, which explicitly recognizes the inherently opposing interests these two parties may have. The supplier and the producer are modeled as players in a nonzero sum game, where the supplier can control the effort invested in the delivery of quality and the producer may or may not inspect incoming materials. We study the effect of contract design (e.g. stipulation of penalties for defective units) on equilibrium behavior and identify conditions on the contract parameters which will result in the implementation of a cooperative solution.

Original languageEnglish (US)
Pages (from-to)373-382
Number of pages10
JournalEuropean Journal of Operational Research
Volume82
Issue number2
DOIs
StatePublished - Apr 20 1995

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Keywords

  • Contracts
  • Games
  • Quality control

ASJC Scopus subject areas

  • Computer Science(all)
  • Modeling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

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