Profit Distribution Based on Producer Service Outsourcing Value Chain - Innovative Management in Information and Production - page 151

Profit Distribution Based on Producer Service
Outsourcing Value Chain

Sanfa Cai, Li Qiu, and Bin Zou

Abstract This paper suggests an improved principal-agent model for profit distri-
bution under double moral hazard risk based on the maximum profit of the producer
service outsourcing value chain in order to realize the maximum profit of both
the manufacturer and contractor. Then the related profit distribution parameters
are set by calculation, and relevant variables are analyzed. The results show that
the optimal output share for contractor is negatively correlated to the output
coefficient of manufacturer's effort and positively correlated to the output coefficient
of contactor's effort and irrelevant to the effort and cost coefficient of the both sides,
while the optimal fixed payment can be selected within a certain range decided by
the agreement reached from the expected profit of the two sides, and the selection
makes no difference to the profit of producer service outsourcing value chain.

Keywords Producer service outsourcing ￿ Value chain ￿ Profit distribution

parameters

1 Introduction

The value chain theory was firstly put forward by Michael Porter in the topic
Competitive Advantage (1985). This paper defines the producer service outsourcing
value chain as a collection of value-added activities in the producer service
outsourcing.
At present, there have been some researches about the profit distribution of
producer service outsourcing. Laffont and Tirole ( 1993 )and Laffont and Martimort
( 2002 ) made studies on the profit distribution based on the principal-agent theory
with consideration about agent's risk attitude and discovered that the optimal profit