Motivating Supplier Social Responsibility Under Incomplete Visibility
Tim Kraft (),
León Valdés () and
Yanchong Zheng ()
Additional contact information
Tim Kraft: Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139
León Valdés: Katz Graduate School of Business, University of Pittsburgh, Pittsburgh, Pennsylvania 15260
Yanchong Zheng: Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139
Manufacturing & Service Operations Management, 2020, vol. 22, issue 6, 1268-1286
Problem definition : We examine how a profit-driven firm (she) can motivate better social responsibility (SR) practices by a supplier (he) when these practices cannot be perfectly observed by the firm. We focus on the firm’s investment in the supplier’s SR capabilities. To capture the influence of consumer demands, we incorporate the potential for SR information to be disclosed by the firm or revealed by a third party. Academic/practical relevance : Most firms have limited visibility into the SR practices of their suppliers. However, there is little research on how a firm under incomplete visibility should (i) invest to improve a supplier’s SR practices and (ii) disclose SR information to consumers. We address this gap. Methodology : We develop a game-theoretic model with asymmetric information to study a supply chain with one supplier and one firm. The firm makes her investment decision given incomplete information about the supplier’s current SR practices. We analyze and compare two settings: the firm does not disclose versus she discloses SR information to the consumers. Results : The firm should invest a high (low) amount in the supplier’s capabilities if the information she observes suggests the supplier’s current SR practices are poor (good). She should always be more aggressive with her investment when disclosing (versus not disclosing). This more aggressive strategy ensures better supplier SR practices under disclosure. When choosing between disclosing and not disclosing, the firm most likely prefers not to disclose when the supplier’s current SR practices seem to be average. Managerial implications : (i) Greater visibility helps the firm to better tailor her investment to the level of support needed. (ii) Better visibility also makes the firm more “truthful” in her disclosure, whereas increased third-party scrutiny makes her more “cautious.” (iii) Mandating disclosure is most beneficial for SR when the suppliers’ current practices seem to be average.
Keywords: social responsibility; supply chain transparency; supplier development; information disclosure; game theory; information asymmetry (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:22:y:2020:i:6:p:1268-1286
Access Statistics for this article
More articles in Manufacturing & Service Operations Management from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Matthew Walls ().