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Incentive contracts for green building production with asymmetric information

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  • Weidong Chen
  • Liming Li

Abstract

When creating a product, a supplier faces the problem of designing the optimal contract to screen the manufacturer's private information. In this paper, we consider a manufacturer with private information about the cost type of production (N types defined in this paper) and its unobservable effort. Aiming to eliminate the negative effects on the green building market development caused by these two kinds of private information, we build a principal-agent model with asymmetric information. The optimal subsidy of the model is obtained by introducing the ‘spot check mechanism’. The results show that manufacturers with reasonable subsidies will not defraud the public about the actual quality of green buildings. Moreover, we discuss the impact of the probability of spot checks and subsidies on the optimal solution. Finally, a numerical example is given to show the effectiveness of the obtained results.

Suggested Citation

  • Weidong Chen & Liming Li, 2021. "Incentive contracts for green building production with asymmetric information," International Journal of Production Research, Taylor & Francis Journals, vol. 59(6), pages 1860-1874, March.
    • Handle: RePEc:taf:tprsxx:v:59:y:2021:i:6:p:1860-1874
    DOI: 10.1080/00207543.2020.1727047
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    Cited by:

    1. Yan Wang & Lifan Yang & Enzo Russo & Domenico Graziano, 2021. "The Incentive Mechanism of Knowledge Sharing in Cross-Border Business Models Based on Digital Technologies," Sustainability, MDPI, vol. 13(22), pages 1-33, November.
    2. Tianjian Yang & Chunmei Li & Xiongping Yue & Beibei Zhang, 2022. "Decisions for Blockchain Adoption and Information Sharing in a Low Carbon Supply Chain," Mathematics, MDPI, vol. 10(13), pages 1-23, June.

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