Strategic Contracting for Software Upgrade Outsourcing in Industry 4.0

The advent of Industry 4.0 has compelled businesses to adopt digital approaches that combine software toenhance production efficiency. In this rapidly evolving market, software development is an ongoing process thatmust be tailored to meet the dynamic needs of enterprises. However, internal research and development can beprohibitively expensive, driving many enterprises to outsource software development and upgrades to externalservice providers. This paper presents a software upgrade outsourcing model for enterprises and service providersthat accounts for the impact of market fluctuations on software adaptability. To mitigate the risk of adverseselection due to asymmetric information about the service provider’s cost and asymmetric information aboutthe enterprise’s revenues, we propose pay-per-time and revenue-sharing contracts in two distinct informationasymmetry scenarios. These two contracts specify the time and transfer payments for software upgrades. Througha comparative analysis of the optimal solutions under the two contracts and centralized decision-making withfull-information, we examine the characteristics of the solutions under two information asymmetry scenarios andanalyze the incentive effects of the two contracts on the various stakeholders. Overall, our study offers valuableinsights for firms seeking to optimize their outsourcing strategies and maximize their returns on investment insoftware upgrades.

Design and Implementation of DBC Based on Dynamic AOP

Traditional approach of design by contract, due to mixing the contract code with application code, is difficult for the extensibility and reusability of software system. This paper presents a framework named JADBC for design by contract based on Aspect-Oriented Programming （AOP） to resolve these problems. By providing a new modularized element, aspect, the framework successfully separates the contracts in design by contract, from functional codes. The implementation of this framework is based on dynamic AOP which can have the contract changed at rtmtime, consequently, enhancing program flexibility. JADBC framework modularizes the contracts in a clear-cut fashion that is easier to design, implement, and maintain.

Cooperation and Contract Design in Project Management with Outsourcing

We study a project management problem where the prime contractor needs to outsource tasks to subcontractors with the required resources.Successful execution of the project requires proper coordination among the subcontractors,as well as contract design by the prime contractor to incentivize the subcontractors.By modeling the subcontractors’coordination problem as a cooperative game,we develop a profit sharing scheme to facilitate the subcontractors’cooperation.We consider two contract designs for the prime contractor:a uniform contract across all subcontractors,and a nonuniform one that customizes incentives for each subcontractor.We propose efficient algorithms to solve the implicit optimization problems for optimal contract parameters.Computational experiments show that the pooling effect of subcontractors’cooperation mitigates the negative impact of poor estimates about the crashing cost and resource availability.We observe three unexpected results through the randomized computation experiments:(i)the subcontractors’profits may decrease if they provide false information;(ii)it is safer for the prime contractor to overestimate subcontractors’crashing costs than underestimate them;and(iii)uniform contracts deliver more project profit for the subcontractors in the coalitions.

MORAL HAZARD STRATEGY AND QUALITY CONTRACT DESIGN IN A TWO-ECHELON SUPPLY CHAIN

Based on game theory and principal-agent theory, this paper focuses on how to control product quality and design quality contract in supply chain when moral hazard exists. We set up the supplier and buyer＇s expected profits function model, in which the supplier makes production process investment-level decision and decides on the product quality prevention level, whereas the buyer makes quality evaluation decision and decides on the product quality inspection level. The supplier with a moral hazard of reducing investment level may lack investment in the production process; thus, the buyer will pay the information rent to incentivize the supplier to improve the investment level. The buyer creates the moral hazard of exaggerating the product quality defective rate, who may overinvest in the inspection process. We use the optimal condition to solve supplier＇s first-best investment level, product quality prevention level, and buyer＇s first-best quality inspection level, internal penalty, and apportionment ratio of external failure cost. We also conduct a simulation test that shows the following： When the supplier improves its investment level, its product quality prevention level will increase, and the buyer＇s quality inspection level will decrease. With the improvement in the buyer＇s product quality inspection level, its internal penalty will increase, and the supplier＇s external failure cost will also increase while its expected profits will decrease. Hence, the buyer will design an incentive contract, the expected profits of which will increase, and the whole supply chain＇s joint expected profits function may become an inverse U shape. Finally, we develop a simulation example and propose suggestions for quality control strategy and contract design in the supply chain under the conditions of asymmetric information.

The Supply Chain Contract Design under Cap-and-Trade Mechanism with Free Riding

This paper studies the influence of free riding on enterprise product pricing and carbon emissions reduction investment, as well as the contract design to achieve supply chain coordination under the carbon trading mechanism. First, we discuss the situation where carbon emissions reduction investment affects the product price and income. It demonstrates that the optimal investment of the upstream manufacturer increases with the degree of the free riding of the downstream manufacturer. The upstream manufacturer can improve their carbon reduction investment and the whole supply chain achieves Pareto improvement when the investment cost sharing contract is introduced. Nevertheless, under the cost-sharing contract the optimal investment of the decentralized supply chain is still lower than that of the centralized supply chain, and only in some particular cases can the two types of supply chain achieve equal total profits. Then, we preliminarily explore the situation where the product price and income is influenced by carbon emissions reduction investment. The consequences indicate that the optimal investment of the upstream manufacturers in this situation is less than the former one's, and the transfer payment mechanism is able to improve the level of the supply chain overall carbon emissions-reduction. Moreover, compared to the former situation, the effects of free riding of the downstream manufacturer are even more serious. The conclusions can provide some intellectual support for manufacturing enterprises to make reasonable emissions reduction strategies and coordinate the supply chain existing in free riding.

Optimal risk allocation in alliance infrastructure projects: A social preference perspective

The mechanism of risk allocation is designed to protect all stakeholders,and it is vital to project success.Qualitative and quantitative ways of optimizing risk allocation have been well documented in extant literature(e.g.,allocation principles,models,and solutions),and the foci of existing research are usually the maximization of rational utility.Few research has focused on partners’social preferences affecting the output of risk allocation.This study presents a quantitative approach based on modeling alliance member(AM)’s inequity aversion(IA)to analyze risk-sharing arrangements in an alliance project.Fehr and Schmidfs inequity-aversion model is integrated into modeling partner’s utility.This paper derives results for an alliance leader(AL)’s optimal risk-sharing ratio and AM's optimal risk-management effort simultaneously.The derivation is based on solving a restrained optimization problem using the conception and methods from Stackel-berg game theory.Results show that an AM’s IA significantly affects risk allocation between AL and AM.Specifically,envious preference is positively related to AL5s optimal risk-sharing ratio,whereas guilty preference negatively affects AL5s optimal risk-sharing ratio.These findings will be of interest to academics and practitioners involved in designing alliance negotiations.

Product Quality Coordination in Outsourcing with Asymmetric Information

This paper investigates agency relationship composed by different risk preference between original equipment manufacturer（ OEM） and contract manufacturer（ CM）. The quality level of contractor CM has a significant influence to market demand,and also influences mutual benefits. To improve the level of quality,contractor has to pay the cost price and the effort,which are not observed and private information,so in this agency relationship there may exist adverse selection and moral hazard. OEM designs menu-driven contractual mechanisms to encourage contractor. In this contractual mechanism,contractor takes initiative to reveal its own effort cost information and maximize mutual profits. This paper set up Stackerlberg game model dominated by OEM,then it gives contract parameters through solving the model and it also analyzes property of incentive contract.