Designing two-period decentralized service chain incentives with the consideration of customer acquisition and retention

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Tian Wang ◽  
Yunan Duan ◽  
Yangyang Liang
Keyword(s):  
Principal Agent ◽  
Customer Acquisition ◽  
Risk Averse ◽  
Content Type ◽  
Service Chain ◽  
Incentive Model ◽  
Risk Neutral ◽  
Fixed Part ◽  
The Impact ◽  
Incentive Strategy

PurposeThe authors address a two-dimensional (both customer acquisition and retention) incentive in a decentralized service chain consisting of a risk-neutral brand and agent (or averse). Design/methodology/approachThe authors focus on the relationship between acquisition and retention, that is, retained customers (repeated purchases) are based on and come from the acquired (new) customers in the former period. The authors also design a two-period separate incentive on both dimensions.FindingsThe authors found that a targeted incentive strategy should be applied for achieving more revenue when the incentive intensities are relatively small. Otherwise, the brand needs to adjust the targeted incentive strategy into incentivizing the opposite dimension, particularly on acquisition. Under the optimal contract, the brand needs to be very careful with deciding the fixed part of the incentive salary and the incentive intensities on both dimensions. For example, the fixed salary initially decreases and then increases in the incentive intensities. For the optimal incentive policies, the brand should incentivize acquisition but outsource retention if the agent is risk-neutral. When the agent is becoming risk-averse, the brand should lower its incentive intensity as the risk degree and variances become larger. Interestingly, the brand may benefit from introducing risks.Originality/valueThe study contributes to the literature by considering the following points. First, the authors extend the principal-agent incentive model by considering two-period decisions of customer acquisition and retention. Second, based on the two-period principal-agent problem, the authors design separate incentive intensities on acquisition and retention, respectively. While, most of the literature focused on acquisition incentives. Third, different from other works focusing on either risk-neutral or risk-averse environments, the authors consider both and compare the cases of risk-neutral and risk-averse to analyze the impact of risk on the optimal decisions and the brand's expected profit.

scholarly journals Are entrepreneurs becoming more risk averse?

2019 ◽  
Vol 35 (1) ◽  
pp. 1-2 ◽  
Author(s):  
John J. Oliver ◽  
Newton Velji
Keyword(s):  
Risk Averse ◽  
Corporate Acquisitions ◽  
Content Type ◽  
Industry Consolidation ◽  
Degree Of Consolidation ◽  
The Uk ◽  
The Impact ◽  
Startup Firms ◽  
Production Industry ◽  
Tv Production

Purpose This paper aims to discuss the emerging theme of risk aversion in entrepreneurs following high levels of industry consolidation. Design/methodology/approach This paper is a viewpoint on the authors’ opinion and interpretation of industry consolidation. Findings The UK Independent TV Production Industry has experienced a remarkable degree of consolidation with corporate acquisitions and mergers changing the size, shape and revenue distribution among firms in the industry. In addition, entrepreneurs appear to be more risk averse in terms of entering the industry. Practical implications If the trend in entrepreneurs in the UK TV Production Industry being more risk averse continues, then the number of new startup firms will fall and that could put the future of the industry at jeopardy. Originality/value This paper presents an interesting observation on the impact of consolidation of the UK Independent TV Production Industry, in so far as, entrepreneurs appear to be becoming more risk averse.

Information asymmetry and incentive contracting with the tax department

2017 ◽  
Vol 16 (3) ◽  
pp. 385-402 ◽  
Author(s):  
Horn-chern Lin ◽  
Tao Zeng
Keyword(s):  
Theoretical Model ◽  
Information Asymmetry ◽  
Private Information ◽  
Relevant Information ◽  
Tax Planning ◽  
Risk Averse ◽  
Content Type ◽  
Incentive Schemes ◽  
The Impact ◽  
Optimal Incentives

Purpose This paper aims to examine the design of optimal incentives for a firm’s tax department in the presence of information asymmetry. Design/methodology/approach This paper provides a theoretical model to examine the design of optimal incentives. The focus is on a situation in which a risk-averse tax department has private information about its efficiency type or effort to be exerted before the firm sets the incentive schemes. Findings This paper shows that a tax department’s risk aversion leads to a decline in the fraction of the cost borne by the tax department. It also shows that the optimal contract schemes should be designed to filter out as much uncontrollable risk as possible by using third-party information relevant to a tax department’s realized cost. Social implications It contributes to a better understanding of the impact of corporate incentive plans on firms’ tax practices. This study, by designing a theoretical model, helps explain why there exist differences in tax planning across firms based on the finding that incentives for tax planning activities differ across firms. Originality/value This paper is the first study that considers the situation in which tax managers’ risk-averse and types, as well as relevant information collected by the firms, can be used to set up incentive schemes and investigates whether and how the incentive schemes will be affected when firms improve their prior information by acquiring relevant information before the tax department acts.

Contract design on digital platform for the risk-averse retailer with moral hazard

Kybernetes ◽  
2018 ◽  
Vol 47 (4) ◽  
pp. 716-741 ◽  
Author(s):  
Zhenhong Li ◽  
Bo Li ◽  
Yanfei Lan
Keyword(s):  
Supply Chain ◽  
Wholesale Price ◽  
Contract Design ◽  
Principal Agent ◽  
Risk Averse ◽  
Market Demand ◽  
Content Type ◽  
Digital Platform ◽  
Investment Level ◽  
Virtual Product

Purpose The advent of e-commerce has prompted the proliferation of digital platforms for virtual products. This reinforces the importance of the contract design problem between the virtual product supplier (he) and the digital platform retailer (she). The purpose of this paper is to investigate a principal-agent problem in a virtual product supply chain, in which the retailer’s sales-effort investment level to sell the virtual product is unobservable to the supplier, and the market demand is unknown to both parties. Design/methodology/approach In this study, the supplier designs two kinds of contracts (wholesale price contract and two-part tariff contract) to maximize his profit, while the retailer determines her sales-effort investment level and the virtual product’s retail price. The results of two different types of contracts are compared to explore in depth the effect of contract choices on the participants’ profits. Findings The authors show that the comparative results of the optimal wholesale prices, retail prices and sales-effort investment levels between these two kinds of contracts all rely on the retailer’s risk-averse degree. Specifically, both the supplier and the whole supply chain prefer the two-part tariff contract rather than the wholesale price contract, the retailer should do opposite when she is low risk-averse, whereas there is no distinction for the retailer’s utilities between these two kinds of contracts when she is more risk-averse. Originality/value The value of the research rests on the use of principal-agent theory in the contracts of virtual products considering the retailer’s sales-effort and risk-aversion degree. The research will serve as a guide for the virtual products’ supplier and the platform retailer in decision-making processes.

Influence of individual investor sentiment on Taiwan option prices during 2007-2010 financial crisis

2015 ◽  
Vol 41 (5) ◽  
pp. 437-464 ◽  
Author(s):  
Wen-Ming Szu ◽  
Wan-Ru Yang
Keyword(s):  
Confidence Interval ◽  
Investor Sentiment ◽  
Stock Index ◽  
Option Prices ◽  
Individual Investor ◽  
Content Type ◽  
The Us ◽  
Risk Neutral ◽  
The Impact ◽  
Option Market

Purpose – This paper investigates changes in risk-neutral distribution derived from Taiwan stockindex options under different market conditions. The purpose of this paper is to explore whether individual investor sentiment significantly influences the Taiwan option prices. Design/methodology/approach – The authors adopt the optimization method to estimate the risk-neutral distribution from the Taiwan stock index options and use the t-test to examine the difference in risk-neutral skewness, kurtosis, and confidence interval between the pre-crisis and crisis periods. This paper tests the impact of individual investor sentiment on risk-neutral skewness and confidence interval in two sub-periods. Findings – The authors find that errors in individual investors’ expectations significantly influence the Taiwan stock index option prices. Research limitations/implications – The data concerning the sentiment of speculative institutional investors are incomplete for the Taiwan option market. Therefore, this paper focusses on the analysis of individual investor sentiment. Further research can study the impact of institutional investor sentiment in emerging markets. Social implications – The previous literature has suggested that option prices reflect information before the information is revealed in stock prices. Therefore, an important implication is to analyze the information quality revealed in option prices by studying whether the changes in option prices are due to investor sentiment or non-sentiment-related components. Originality/value – Most of the studies in the literature have focussed on the US option market, and their applicability may vary across different microstructures. This paper shows that the influence of individual investor sentiment in an emerging market is different from that in the US market.

Tax avoidance in management-owned firms: evidence from Brazil

2019 ◽  
Vol 15 (4) ◽  
pp. 580-592 ◽  
Author(s):  
Otávio Gomes Cabello ◽  
Luiz Eduardo Gaio ◽  
Christoph Watrin
Keyword(s):  
Tax Avoidance ◽  
Decision Makers ◽  
Risk Averse ◽  
Tax Rates ◽  
Effective Tax Rates ◽  
Content Type ◽  
Insider Ownership ◽  
Management Ownership ◽  
The Impact ◽  
Different Levels

PurposeThe purpose of this paper is to test if companies with a greater concentration of management ownership (and thus more risk-averse managers) avoid less tax.Design/methodology/approachThe authors use a regression analysis with panel data, using as a sample of Brazilian companies from 2001 to 2015. The authors investigate the impact of insider ownership on tax avoidance, testing how and how much different ownership levels of inside owner are associated with tax avoidance measured by effective tax rates and book-tax differences.FindingsThe results indicate that different levels of management ownership are associated with different levels of tax avoidance behavior.Originality/valueThis paper contributes to the literature showing that ownership and decision making are not always focused on only a few decision makers. The owners are likely to be more risk averse and therefore less willing to invest in risky projects such as tax avoidance.

Dynamic performance incentive model with supervision mechanism for PPP projects

2020 ◽  
Vol 27 (9) ◽  
pp. 2643-2659 ◽  
Author(s):  
Hong Zhang ◽  
Lu Yu ◽  
Wenyu Zhang
Keyword(s):  
Public Sector ◽  
Private Sector ◽  
Economic Benefit ◽  
Dynamic Performance ◽  
Principal Agent ◽  
Operation Performance ◽  
Content Type ◽  
Effort Level ◽  
The Public ◽  
Incentive Model

PurposeThis study is aimed to explore the dynamic performance incentive model for a flexible PPP contract to handle uncertainties based on supervision during the long-time concession period, so as to ensure operation performance and benefits of the public sector while protecting the economic benefit of the private sector, thus avoiding unnecessary renegotiation.Design/methodology/approachThe microeconomic and principal–agent theories and relevant studies on the basic incentive model and flexible contract are fully utilized. The procedure for developing the dynamic incentive model and the assumptions about the quantitative relationships among fundamental variables or factors are first proposed. The static incentive model without incentive parameter adjustment and then the dynamic incentive model allowing incentive parameter adjustment are successively developed. Finally, the propositions regarding the valid adjustment ranges of the incentive parameter with respect to the economic, social and hybrid benefits of the public sector and the economic benefit of the private sector are suggested.FindingsThe dynamic incentive model enables to achieve a flexible contract to handle uncertainties on the PPP project to ensure the benefits of the public sector while protecting the benefit of the private sector. The economic, social and hybrid benefits of the public sector and the economic benefit of the private sectors can be respectively realized through adjusting the reward–punishment coefficient under different adjustment ranges and different importance. The incentive model is able to ensure the benefits of the public sector while protecting the benefit of the private sector by controlling the private sector's effort level unknown to the public sector.Originality/valueThe dynamic incentive model helps implement a flexible PPP contract to handle uncertainties during the operation period, thus controlling the effort level of the private sector and ensuring the benefits of the public sector while protecting the economic benefit of the sector. It enables to clarify the quantitative relationships between the operation performance, the benefits of the stakeholders, the effort level of the private sector and the reward–punishment coefficient. This study contributes to the domain knowledge of the incomplete contract theory for designing a flexible PPP contract with dynamic incentive and supervision mechanism by applying the microeconomic and principal–agent theories.

Effects of platform quality requirement on sellers

Kybernetes ◽  
2017 ◽  
Vol 46 (7) ◽  
pp. 1204-1222
Author(s):  
Huijun Hou ◽  
Xiaoying Cheng
Keyword(s):  
Product Quality ◽  
Design Methodology ◽  
Optimal Decision ◽  
Quality Level ◽  
Risk Averse ◽  
Quality Requirement ◽  
Minimum Level ◽  
Content Type ◽  
Service Charge ◽  
Risk Neutral

Purpose The purpose of this paper is to study the effects of the requirement on product quality and refund (return service charge). Design/methodology/approach The authors set a minimum product quality level for platform to study the effects of the minimum product quality level on product quality and refund for risk-neutral sellers and risk-averse sellers, respectively. Findings For the risk-neutral sellers whose optimal product quality level is lower than the minimum level will improve the product quality to the minimum required level. However, under a certain condition with the requirement the sellers will increase refund. Similar results are found when uncertainty is incorporated into demand and return quantity. In addition, how the sellers’ optimal refund is affected by market parameters and market volatile factors is discussed. Specially, the correlation between the uncertainty of the demand and the return quantity affects sellers’ optimal decision of return service charge in many ways. Originality/value The obtained results can provide operational managers in reality with valuable suggestions in quality management for platform.

An optimal target cost contract with a risk neutral owner

2014 ◽  
Vol 21 (5) ◽  
pp. 586-604 ◽  
Author(s):  
S. Mahdi Hosseinian ◽  
David G. Carmichael
Keyword(s):  
Design Methodology ◽  
Maximization Problem ◽  
Risk Averse ◽  
Content Type ◽  
Cost Uncertainty ◽  
Target Cost ◽  
Risk Neutral ◽  
Optimal Target ◽  
The Cost ◽  
Practical Implications

Purpose – Target cost contracts are commonly used to share the monetary outcome of work or a project. However, discussion is ongoing, as to what constitutes optimal sharing. The purpose of this paper is to examine optimal sharing and derives a result for defined risk assumptions on the owner (risk neutral) and contractor (risk-averse ranging to risk neutral). Design/methodology/approach – The derivation is based on solving a constrained maximization problem using ideas from principal-agent theory. Practitioners were engaged in a designed exercise in order to validate the approach and propositions. The influence of the contractor's level of risk aversion, the cost uncertainty and the contractor's effort effectiveness are examined. Findings – The paper shows that, at the optimum, the sharing ratio between contractor and owner needs to reduce and the fixed fee needs to increase when the contractor becomes more risk-averse, the level of the cost uncertainty increases, or the effectiveness of the contractor effort decreases. Practical implications – The paper's findings provide practitioners with a useful benchmark for outcome sharing in target contracts. Originality/value – Existing work on outcome sharing in target contracts is limited to being qualitative and anecdotal in nature. This paper extends existing knowledge by providing a quantitative treatment of optimal sharing.

Personal ruin versus corporate profit: why individual risk attitudes lessen economic outcomes

2012 ◽  
Vol 52 (1) ◽  
pp. 301
Author(s):  
Matthew B. Welsh ◽  
Stephen (Steve) H. Begg
Keyword(s):  
Prospect Theory ◽  
Utility Theory ◽  
Oil And Gas ◽  
Risk Tolerance ◽  
Petroleum Exploration ◽  
Individual Risk ◽  
Risk Averse ◽  
Risk Neutral ◽  
Corporate Risk ◽  
The Impact

Previous work on utility theory has highlighted value lost as a result of companies’ non-risk-neutral behaviour. Prospect theory, however, extends utility theory to describe how individuals make decisions under uncertainty. Key features include: use of decision weights rather than probabilities, and asymmetry between losses and gains, with losses weighted more heavily. Both effects impact on peoples’ risk tolerance (i.e., how risk averse or risk seeking they are). Given the petroleum industry’s reliance on decisions made under uncertainty, prospect theory can significantly impact on the value of decisions. This paper presents multiple studies highlighting the impact of prospect theory on decision value and, in particular, the changes in value resulting from differences between individual and company risk tolerances. Results indicate that prospect theory effects cause changes in risk tolerance, resulting in lost value compared to risk-neutral decisions and that this is strongest when probability of success is low—as is often the case in petroleum exploration. Differences between individual and corporate risk tolerances also impact value. The presented studies, however, demonstrate why it can benefit an individual to be risk averse even when their employer would prefer risk-neutrality, as this reduces the chance of personal ruin and increases personal expected value (EV). Finally, the implications for oil and gas decision makers are discussed. It is argued that corporate risk tolerances are, in fact, aggregated individual risk tolerances, which should be compared to ideal corporate risk tolerances calculated using the chance of ruin for a company with a particular portfolio of investments.

Wholesale-retail pricing strategies under market risk and uncertain demand in supply chain using evolutionary game theory

Kybernetes ◽  
2018 ◽  
Vol 47 (6) ◽  
pp. 1178-1201 ◽  
Author(s):  
Ashkan Hafezalkotob ◽  
Reza Mahmoudi ◽  
Elham Hajisami ◽  
Hui Ming Wee
Keyword(s):  
Game Theory ◽  
Supply Chain ◽  
Evolutionary Game Theory ◽  
Evolutionary Game ◽  
Retail Price ◽  
Risk Averse ◽  
Content Type ◽  
Risk Neutral ◽  
Wholesale Pricing

Purpose Nowadays, uncertainty in market demand poses considerable risk to the retailers that supply the market. On the other hand, the risk-averse behaviors of retailers toward risk may have evolved over time. Considering a supply chain including a manufacturer and a population of retailers, the authors intend to investigate how the population of retailers tends to evolve toward risk-averse behavior. Moreover, this study aims to evaluate the effects of wholesale-retail price of manufacturer on evolutionary stable strategy (ESS) of the retailers. Design/methodology/approach Due to market uncertainty, a supply chain with a population of risk-averse and risk-neutral retailers was investigated. The wholesale pricing strategy is determined by a manufacturer acting as a leader, while retailers who make order quantity decisions act as followers. An integrated Cournot duopoly equilibrium and evolutionary game theory (EGT) approach has been used to model this situation. Findings A numerical real-world case study using Iran Khodro Company is analyzed by applying the proposed EGT approach. The study provides managerial insights to the manufacturer as well as retailers in developing their strategies. Results showed that risk behavior of retailers significantly affects optimal wholesale/retail price, profits and ESS. In the long term, the retailers tend to have a risk-neutral behavior to gain more profit. In the short term, if a retailer choses risk-averse strategy, in the long term, it will change its strategy to obtain more profit and remain in the competitive market. Originality/value The contributions in this research are fourfold. First, ESS concept to investigate the risk-averse or risk-neutral attitudes of the retailers was used. Second, the uncertain risk behavior of the competing retailers was considered. Third, the effect of varying wholesale pricing was investigated. Fourth, the equilibrium wholesale and retail prices have been obtained by considering uncertainty demand and risk.

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