Incentive contracts for multi-task business outsourcing
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    Abstract:

    Multi-task outsourcing can help a customer enterprise make full use of its external resources. To improve efficiency of outsourcing, multi-task-oriented incentive contracts need to be designed to encourage the outsourcing firm to balance its effort and investment among the tasks. In this paper, a multi-task principal-agent model is constructed, with the outsourcing firm modeled as an agent with a mean-variance utility objective. Sensitivity analyses are exerted to probe into impact of the exogenous parameters on the incentive contract. Finally, application of the theoretical model is investigated in the three scenarios as follows: The two tasks are independent, substitutive and complementary. It shows that the optimal incentive coefficient of a certain task is jointly determined by the risk-averse coefficient of the outsourcing firm, the task-specific parameters, and as well correlation coefficient of the two tasks. Furthermore, with change of the properties peculiar to one task, the adjustment direction and size of incentive intensity of the other task are determined by the correlated nature and degree of correlation between the two tasks, respectively. Managerial insights are provided for the customer enterprise to strengthen the incentive management of multi-task-outsourcing, taking full advantage of various indices of the properties, especially of the correlation properties of the tasks.

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  • Online: April 12,2018
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