Profit Allocation, Decision Sequence and Compliance Aspects of Coordinating Contracts: A Retrospect

Production and Operations Management, 28, 2019, pp. 1222-1237

38 Pages Posted: 22 Jun 2020

See all articles by Meng Lu

Meng Lu

affiliation not provided to SSRN

Suresh Sethi

University of Texas at Dallas - Naveen Jindal School of Management

Yangyang Xie

International Institute of Finance, School of ManagementUniversity of Science and Technology of China

Houmin Yan

City University of Hong Kong (CityU) - Faculty of Business

Date Written: 2019

Abstract

Coordinating contracts have been extensively researched in supply chain management. In this retrospect, we systematically review the profit allocation, decision sequence, and compliance aspects of these contracts. In addition to the existing concepts in the literature, we propose the notion of sample-path flexibility in profit allocation. Based on precise mathematical definitions, we develop structural properties and characterize sufficient conditions for flexibility in profit allocation, sequence independence, and voluntary compliance. We also obtain sufficient conditions for coordinating supply chains involving fairness-preferred or downside-risk-averse agents with sample-path flexible and voluntary compliant contracts. We reveal that sample-path flexible contracts must have a transaction after uncertainty is realized and that transactions both before and after uncertainty realization adds to their flexibility. With the properties and conditions in hand, we develop a 3 9 3 matrix framework of the coordination aspects within which several well-studied supply chain contracts can be systematically classified. Furthermore, we provide the steps to design coordinating contracts with sample-path flexibility and voluntary compliance, along

Keywords: coordinating contract classification; contract design; profit allocation; decision sequence; compliance regime

JEL Classification: C61, M11, M31, M20, Z33, D04, C44, C10

Suggested Citation

Lu, Meng and Sethi, Suresh and Xie, Yangyang and Yan, Houmin, Profit Allocation, Decision Sequence and Compliance Aspects of Coordinating Contracts: A Retrospect (2019). Production and Operations Management, 28, 2019, pp. 1222-1237, Available at SSRN: https://ssrn.com/abstract=3560568

Meng Lu

affiliation not provided to SSRN

Suresh Sethi (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 W. Campbell Road, SM30
Richardson, TX 75080-3021
United States

Yangyang Xie

International Institute of Finance, School of ManagementUniversity of Science and Technology of China ( email )

Hefei, Anhui
China

Houmin Yan

City University of Hong Kong (CityU) - Faculty of Business ( email )

Tat Chee Avenue, Kowloon, Hong Kong SAR
Kowloon
Hong Kong

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