Contract design and the control of quality in a conflictual environment

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 t...

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Bibliographic Details
Published inEuropean journal of operational research Vol. 82; no. 2; pp. 373 - 382
Main Authors Reyniers, Diane J., Tapiero, Charles S.
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 20.04.1995
Elsevier
Elsevier Sequoia S.A
SeriesEuropean Journal of Operational Research
Subjects
Contracts
Game theory
Games
Mathematical models
Quality control
Studies
Contracts
Quality control
Games
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Summary: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.
ISSN:0377-2217
1872-6860
DOI:10.1016/0377-2217(94)00270-M