A Principal-Agent Model for Cooperative Production of Motor Vehicle

Abstract

The outsourcing production are performed not only by the supplier but also by buyer, so the intangibility and unverifiability of their contributed resources bring on double moral hazard. Focused on double moral hazard, an outsourcing contract of cooperative production of motor vehicle is designed with principal-agent theory. The maximization of benefit of the outsourcing will be given by the optimization between the fixed payment and the proportion of revenue-sharing under the limitation of the participation constraint and incentivecompatibility constraint. Subsequently, the influence of exogenous variable's on the optimized contract parameters is further analyzed. At last, the conclusions are proved by a numerical example.