Share This Article:

Principal-Agent Theory Based Risk Allocation Model for Virtual Enterprise

Abstract Full-Text HTML Download Download as PDF (Size:277KB) PP. 241-249
DOI: 10.4236/jssm.2010.32030    4,957 Downloads   9,353 Views   Citations

ABSTRACT

In this paper, we consider a risk analysis model for Virtual Enterprise (VE) by exploring the state of the art of the principal-agent theory. In particular, we deal with the problem of allocating the cost of risk between two parties in a VE, namely, the owner and the partner(s). We first consider the case of a single partner of VE with symmetric information or asymmetric information and then the case of multiple partners. We also build a model for the optimal contract of the risk allocation based on the principal-agent theory and analyze it through specific example. At last we consider the case of multiple principal with potentially many partners based on common agency.

Conflicts of Interest

The authors declare no conflicts of interest.

Cite this paper

M. Huang, G. Chen, W. Ching and T. Siu, "Principal-Agent Theory Based Risk Allocation Model for Virtual Enterprise," Journal of Service Science and Management, Vol. 3 No. 2, 2010, pp. 241-249. doi: 10.4236/jssm.2010.32030.

References

[1] M. T. Martinez, P. Fouletier, K. H. Park and J. Favrel, “Virtual Enterprise-Organization, Evolution and Control,” International Journal of Production Economics, Vol. 74, No. 3, 2001, pp. 225-238.
[2] A. Mowshowitz, “Virtual Organization,” Communication of the ACM, Vol. 40, No. 9, 1997, pp. 30-37.
[3] M. Ojala and J. Hallikas, “Investment Decision-Making in Supplier Networks: Management of Risk,” Interna- tional Journal of Production Economics, Vol. 104, No. 1, 2006, pp. 201-213.
[4] Q. L. Gao and G. P. Cheng, “Virtual Enterprise’s Ope- ration Risk,” Value Engineering, Vol. 104, No. 9, 2006, pp. 104-105.
[5] M. Thomas and E. Norman, “Moral Hazards on the Road to the ‘Virtual’ Corporation,” Business Ethics Quarterly, Vol. 8, No. 2, 1998, pp. 273-292.
[6] M. Gaynor and P. Gertle, “Moral Hazard and Risk Spreading in Partnerships,” Journal of Economics, Vol. 26, No. 4, 1995, pp. 591-613.
[7] F. Ye and Y. N. Li, “Group Multi-Attribute Decision Model to Partner Selection in the Formation of Virtual Enterprise under Incomplete Information,” Expert Systems with Applications, Vol. 36, No. 5, 2009, pp. 9350-9357.
[8] A. H. Yannis and C. G. Andreas, “A Goal Programming Model for Partner Selection Decisions in International Joint Ventures,” Journal of Operations Management, Vol. 138, No. 3, 2002, pp. 649-662.
[9] H. M. Gou, B. H. Huang, W. H. Liu and X. Li, “A Framework for Virtual Enterprise Operation Manage- ment,” Computers in Industry, Vol. 50, No. 3, 2003, pp. 333-352.
[10] A. F. Cutting-Decelle, R. I. M. Young and B. P. Das, “Information Exchanges in a Cross Disciplinary Supply Chain: Formal Strategy and Application,” INCOM’06 Conference, Saint-Etienne, 2006.
[11] W. Ip, M. Huang, K. Yung and D. Wang, “Genetic Algorithm Solution for a Risk-Based Partner Selection Problem in a Virtual Enterprise,” Computers and Opera tions Research, Vol. 30, No. 2, 2003, pp. 213-231.
[12] H. Lars, “Managing Cooperative Research and Deve- lopment: Partner Selection and Contract Design,” R & D Management, Vol. 23, No. 4, 2007, pp. 273-285.
[13] L. M. Camarinha-Matos and C. Lima, “Cooperation Coordination in Virtual Enterprises,” Journal of Intelli- gent Manufacturing, Vol. 12, No. 2, 2001, pp. 133-150.
[14] R. Narasimhan and T. P. Srinivas, “Perspectives on Risk Management in Supply Chains,” Journal of Operations Management, Vol. 27, No. 21, 2009, pp. 114-118.
[15] L. H. Sung, H. P. Yeng, M. R. Yan and J. R. Lee, “On-Line Multi-Criterion Risk Assessment Model for Construction Joint Ventures in China,” Automation in Construction, Vol. 16, No. 5, 2007, pp. 607-619.
[16] B. Holmstrom, “Moral Hazard and Observability,” Bell journal of Economics, Vol. 10, No. 1, 1979, pp. 74-91.
[17] G. Esther, “Multi Principal Agency Relationships as Implied by Product Market Competition,” Journal of Economic & Management Strategy, Vol. 6, No. 1, 2004, pp. 235-256.
[18] B. D. Bernheim and M. D. Whinston, “Common Agency,” Econometrica, Vol. 54, No. 4, 1986, pp. 923-942.
[19] A. Attar, E. Campioni, G. Piaser and U. Rajan, “On Multiple-Principal Multiple-Agent Models of Moral Ha- zard,” Games and Economic Behavior, Vol. 68, No. 1, 2010, pp. 376-380.
[20] L. M. Camarinha-Matos and C. Lima, “Aggregation and Linearity in the Provision of Intertemporal Incentives,” Econometrica, Vol. 55, No. 5, 1987, pp. 303-328.
[21] G. Feltham and J. Xie, “Performance Measure Congruity and Diversity in Multi-Task Principal-Agent Relations,” The Accounting Review, Vol. 69, No. 3, 1994, pp. 429-453.
[22] R. A. Lambert, “Contracting Theory and Accounting,” Journal of Accounting and Economics, Vol. 32, No. 1-3, 2001, pp. 3-87.

  
comments powered by Disqus

Copyright © 2018 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.