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Analysis of the Market‐Based Adjustable Outsourcing Contract under Uncertainties
Author(s) -
Feng Baichun,
Yao Tao,
Jiang Bin
Publication year - 2012
Publication title -
production and operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.279
H-Index - 110
eISSN - 1937-5956
pISSN - 1059-1478
DOI - 10.1111/j.1937-5956.2012.01349.x
Subject(s) - outsourcing , bargaining problem , business , industrial organization , process (computing) , microeconomics , contract management , contract theory , operations management , risk analysis (engineering) , computer science , economics , marketing , operating system
The market‐based adjustable contract for customized goods or services has emerged in outsourcing practices. Its objective is to minimize the operational risks inherent in today's volatile environment of operations. Our research reveals several important properties of this contract through a continuous‐time analytical approach. Specifically, we consider the determination of this contract between two risk‐averse firms through a Nash bargaining process. We derive the optimal adjusting mechanism analytically and extensively analyze the application boundary of the market‐based adjustable outsourcing contract. We conclude by discussing implications for practice and research.