Incentive Effects Favor Nonconsolidating Queues in a Service System: The Principal--Agent Perspective

Stephen M. Gilbert and Z. Kevin Weng
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Stephen M. Gilbert: Weatherhead School of Management, Case Western Reserve University, Cleveland, Ohio 44016-7235
Z. Kevin Weng: School of Business, University of Wisconsin--Madison, Madison, Wisconsin 53706-1323

Management Science, 1998, vol. 44, issue 12-Part-1, 1662-1669

Abstract: In this paper, we study a service network in which an agency is responsible for satisfying a constraint on the expected waiting and service time experienced by customers. However, the agency does not render the actual service. Instead, it serves to coordinate independently operated facilities. The coordinating agency must devise a strategy for allocating compensation and customers to the self-interested operators in order to minimize its own costs. For a network of two facilities, we model the facilities' self-interested capacity decisions as the solution to a game. Using this analytical framework, we compare two types of customer allocation: one from a common queue, and one from separate queues. Our analysis shows that it can be in the best interest of the coordinating agency to adopt a separate queue allocation scheme instead of one based on a common queue. Although doing so sacrifices risk-pooling benefits, these can be more than offset by the stronger incentives that are created for the independent facilities.

Keywords: Risk-Pooling; Capacity Allocation; Competitive Equilibrium; Incentives (search for similar items in EconPapers)
Date: 1998
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Citations: View citations in EconPapers (29)

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