Quality evaluation level decision in outsourcing under asymmetric information

Abstract

In this paper, the issue of quality evaluation level decision problem in outsourcing is studied under different information backgrounds. Based on the quality contracting optimization models of Stanley and others, a principal agent model concerned with quality prevention level and evaluation level is set up with regards to buyer as principal and supplier as agent. In the models, quality prevention level is a variable decided by the supplier, quality evaluation level and transfer payment are variables decided by the buyer. We focus on the study of quality evaluation level and transfer payment decision in outsourcing under asymmetric information. Maximal principle is used to get the solution to quality evaluation level when supplier quality prevention level information is hidden. At last simulation calculation is performed concerned with tractor production outsourcing business of an agricultural machine company. Simulation results under different information backgrounds are analyzed and compared.

Keywords

Outsourcing / asymmetric information / principal agent / maximal principle / quality evaluation

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