Principal-Agent Theory Based Risk Allocation Model for Virtual Enterprise

.
DOI: 10.4236/jssm.2010.32030   PDF   HTML     5,290 Downloads   9,791 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.

Share and Cite:

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.

Conflicts of Interest

The authors declare no conflicts of interest.

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 © 2020 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.