Contract Design and Supplier Quality Management under Asymmetric Information

Abstract

This paper investigated how to design contract models under asymmetric information to manage supplier quality and achieve supply chain coordination. We employed game theory to design contract models: optimal contracts in centralized control situation, profit margin contract and profit sharing contract in decentralized control situation. Under asymmetric information, the manufacturer designed optimal contract to manage supplier quality and to achieve coordination. The numerical analyses show that profit sharing contract is an optimal decision and coordination mechanism in decentralized control situation.