Contract design and the control of quality in a conflictual environment

Diane J. Reyniers, Charles 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

Fingerprint

supplier
producer
Nonzero-sum Games
Inspection
Penalty
penalty
supply
Unit
Design
Suppliers
Contract design
Cooperative solution

Keywords

  • Contracts
  • Games
  • Quality control

ASJC Scopus subject areas

  • Information Systems and Management
  • Management Science and Operations Research
  • Modeling and Simulation
  • Statistics, Probability and Uncertainty
  • Applied Mathematics
  • Transportation

Cite this

Contract design and the control of quality in a conflictual environment. / Reyniers, Diane J.; Tapiero, Charles.

In: European Journal of Operational Research, Vol. 82, No. 2, 20.04.1995, p. 373-382.

Research output: Contribution to journalArticle

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