Quality and Information Asymmetry in Service Outsourcing
This paper studies how to design service outsourcing contracts with qual-ity consideration and the presence of asymmetric information. An out-sourcer procures a service from a service provider whose cost structure is private information. We model the service provider as a general queuing system, where each job has a revenue potential, and service quality is mea-sured by the percentage of jobs successfully resolved. The service provider makes two strategic decisions: how much capacity to install and how much e .ort to exert to achieve high quality.The outsourcer can induce the truthful cost information from the ser-vice provider by o .ering a menu of contracts. However, the optimal menu of contracts is contingent upon the cost announced by the supplier, and is generally non-linear. Here we study the e .ectiveness of simple contracts that are non-contingent on the suppliers private information. These con-tracts are commonly used in practice because they do not require the service providers cost as an input and the contract terms are linear. In particular,there are two categories of simple contracts being observed in practice: those that directly contract on capacity and quality levels, and those that utilize financial incentives to induce quality service. We show that financial incen-tive contracts always yield a lower cost for the outsourcer than the direct contracts. Interestingly, we also find that both types of contracts perform remarkably well compared to the optimal menu of contracts. Our results suggest that outsourcing companies can use relatively simple and yet robust contracts to assure a high level of capacity and quality service even when they do not have perfect information of the service provider.
outsourcing contracts quality information asymmetry,queueing systems
Z. Justin Ren Fuqiang Zhang
School of Management Boston University Boston, MA 02215 Fuqiang Zhang Merage School of Business University of California, Irvine Irvine, CA 92697
国际会议
2007 International Conference on Manufacturing & Service Operations Management(2007制造与服务运作管理国际学术会议)
北京
英文
2007-06-18（万方平台首次上网日期，不代表论文的发表时间）