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Value creation and value capture under moral hazard: Exploring the micro‐foundations of buyer– supplier relationships
Author(s) -
Obloj Tomasz,
Zemsky Peter
Publication year - 2015
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.2271
Subject(s) - incentive , value (mathematics) , microeconomics , business , moral hazard , value creation , value capture , industrial organization , marketing , order (exchange) , economics , computer science , finance , machine learning
We combine the formalism of a principal–agent framework with a value‐based analysis in order to investigate the micro‐foundations of business partner selection and the division of value in contracting relationships. In particular, we study how the key contracting parameters such as efficiency, transactional integrity, incentive alignment, and gaming affect outcomes when buyers face competing suppliers. We show that integrity and efficiency increase value creation and capture for all parties and are complements. While incentive gaming is unambiguously bad for value creation, and reduces buyers' value capture, it can benefit some suppliers. For alignment, we find that neither party has an incentive to use fully aligned performance measures that maximize total value creation. We conclude by analyzing buyers' and suppliers' incentives to invest in integrity . Copyright © 2014 John Wiley & Sons, Ltd.