Profit Distribution Based on Producer Service Outsourcing Value Chain - Innovative Management in Information and Production - page 157

6 Summary

In order to get the maximum profit of the producer service outsourcing value
chain, this paper suggests an improved principal-agent model for outsourcing
profit distribution to get rid of the double moral hazard risk and maximize both
the manufacture's and contractor's profit and then analyzes the variables of the
profit distribution. 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, but 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 whole producer
service outsourcing value chain. The research reveals that the manufacturer and
contractor should maintain good negotiation and communication to ensure that they
both realize their expected maximum profit.

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