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Innovation and waste in supply chain management

Martin Peitz and Dongsoo Shin ()

Journal of Economic Behavior & Organization, 2013, vol. 86, issue C, 191-199

Abstract: We study a supply chain relationship in which the buyer outsources production of a component to the supplier. The buyer also produces a component and combines it with the supplier's input to yield the final output. The supplier can upgrade production of his input via costly innovation. Neither the supplier's effort for innovation nor the result of the innovative activity can be publicly verified. We show that, when the cost of innovation is large, the buyer's optimal contract may induce ‘wasting’ a fraction of the supplier's input.

Keywords: Agency; Innovation; Supply chain; Waste (search for similar items in EconPapers)
JEL-codes: D82 D86 L23 (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1016/j.jebo.2012.11.013

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Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

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