A Study on Project Duration Incentives in a Retail Apparel Franchise

Yichen Peng, Jing Zhou and Xiaoling Wu
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Yichen Peng: School of Business Administration, Nanjing University of Finance & Economics, Nanjing 210046, China
Jing Zhou: School of Management and Engineering, Nanjing University, Nanjing 210093, China
Xiaoling Wu: School of Management and Engineering, Nanjing University, Nanjing 210093, China

Sustainability, 2015, vol. 7, issue 2, 1-16

Abstract: This paper studies the impact on project duration of different forms of over-confidence among general contractors executing such projects, in the context of retail apparel franchises. It goes on to consider the design of relevant incentives and, in particular, a compensation mechanism included in the initial contract that covers the event of contractor dismissal. This mechanism is examined as a means of hedging risk arising from the behavior of the principal. This includes a study of a two-way risk avoidance strategy, which is intended to make up for a shortfall in this regard in the existing literature. Outcomes derived from this research include the conclusion that different levels of confidence can have various impacts on optimal incentive coefficients and the effort level extracted from agents, thereby affecting the ultimate configuration of an optimal contract. Introducing a compensation mechanism covering the event of dismissal can serve to diminish the risk of an agent breaching their contract. This paper applies the concept of bounded rationality to a principal-agent model, ensuring conclusions that are attuned to reality.

Keywords: franchise; apparel branding; clothing branding; project duration incentives; over-confidence; two-way risk (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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