Decentralization Policies for Supply Chain Investments Under Asymmetric Information

Per Agrell () and Peter Bogetoft

Managerial and Decision Economics, 2017, vol. 38, issue 3, 394-408

Abstract: Supply chains need specific investments for improved performance in terms of lead‐time, cost, and quality. We study the contractual choice of a coordinator to either centralize or delegate the investment decision in a three‐stage chain. The analysis derives closed‐form results for the economic performance of three decentralized contracting schemes under asymmetric information on investment cost, as well as the optimal full revelation results. The results show that the observed practice of tier‐1 delegated investments leads to relatively poor performance because of underinvestment. We illustrate the findings with the Boeing 787 debacle. Copyright © 2016 John Wiley & Sons, Ltd.

Date: 2017
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Working Paper: Decentralization policies for supply chain investments under asymmetric information (2017)
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