Profit and Risk Sharing in a Virtual Enterprise

Karjalainen, Jouko; Haahtela, Tero; Malinen, Pekka; Salminen, Vesa

doi:10.1142/s0219877004000040

Cited by 8 publications

(5 citation statements)

References 19 publications

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“…In the field of economics, agents are often assumed to be risk averse. In addition to fuzzy evaluation [20,21,24,25], case study approach [26], almost all of the papers described risk-aversion by a concave utility function or a mean-variance tradeoff which is widely used in theoretical studies. This paper uses downside risk measure to describe the risk.…”

Section: Related Literaturementioning

confidence: 99%

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Mechanism Design of Fashion Virtual Enterprise under Monitoring Strategy

Huang

Chen

Cheng

et al. 2014

Mathematical Problems in Engineering

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Designing a revenue sharing contract to prevent the moral hazard is one of the most important issues in virtual enterprise (VE). As the partners' productive effort level cannot be observed by the owner and other partners, there is usually moral hazard problem in VE. To mitigate the moral hazard, the owner sets the monitoring effort with monitoring cost. Considering a risk-neutral owner and multiple downside risk-averse partners, the owner's problem of determining the monitoring effort and incentive intensity to maximize his profit while the partners determine their productive effort to maximize their profit is addressed. The principal agent based model of this problem is proposed. By solving the model, the optimal strategy of owner and partner is derived. By comparing with the no monitoring scenario, we find that implementing suitable monitoring strategy can reduce the moral hazard effectively. Finally, by analyzing the partners' risk attitude, the result reveals that the lower the risk level of the partner is, the more the owner wants. These results suggest that VE should not only focus on the risk attitude but also on monitoring.

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Section: Related Literaturementioning

confidence: 99%

“…In this section, we provide some numerical examples based on (24), (25), and (26). The purpose is twofold.…”

Section: Numerical Examplesmentioning

confidence: 99%

Mechanism Design of Fashion Virtual Enterprise under Monitoring Strategy

Huang

Chen

Cheng

et al. 2014

Mathematical Problems in Engineering

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“…Furthermore, to simplify the analysis, we assume that the share of the transfer payment to member enterprise j borne by member enterprise i is the same across member enterprises i∈N\j. Then, from equation (6) for all i and j and j≠i (15) Substituting (13) and (15) into (10), and then substituting (10) into (7), we could get the expected utility of a VE:…”

Section: Optimality Of Sharing Contractmentioning

confidence: 99%

“…Unfortunately, there are few researchers who go deeply into these problems, especially the revenue and risk sharing in VEs, though VEs have arrested many researchers' attentions. Karjalainen, Haahtela, et al (2004) have used a case study approach to explore the implementation of profit and risk sharing mechanisms in a real-life VE. Their result shows that lack of trust and a shared vision may be the most important cause for the early decomposition of a VE.…”

Section: Introductionmentioning

confidence: 99%

Study on revenue sharing contract in virtual enterprises

Chen

2006

J. Syst. Sci. Syst. Eng.

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Member enterprises engaged in a virtual enterprise are prone to shirk both productive efforts and risks because their efforts are unobservable to any other member enterprises. How to design a revenue sharing contract to prevent the member enterprises from free riding is one of the most important issues to be considered to cut down risks that virtual enterprises may meet. Based on the work of profit sharing in partnerships and the research on revenue sharing in supply chains and joint ventures, we propose a model of the revenue sharing contract aimed at coordinating a virtual enterprise composed of n risk-averse member enterprises where every member enterprise performs different tasks and contributes distinct core resources. We characterize the optimal productive efforts, risk-taken and incentive intensity in the revenue sharing contract, and indicate that improving the evaluation precision of productive efforts and selecting weakly risk-averse member enterprises with close power are the key factors to the success of VEs.

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“…By exploring the characteristics of the problem considered and the knowledge of project scheduling, a rule-based genetic algorithm (R-GA) with embedded project scheduling is developed to solve the problem. Karjalainen et al (2004) [7] use a case study approach to explore the implementation of profit and risk-sharing mechanisms in a VE. Lack of a shared vision may have been the most important cause for the early decomposition of the VE.…”

Section: Introductionmentioning

confidence: 99%

A Coordination of Risk Management for Supply Chains Organized as Virtual Enterprises

Huang

Wang

et al. 2013

Mathematical Problems in Engineering

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As a new management mode, great attention has been paid to virtual enterprise (VE). While there is much research material on risk management of VE, a relationship perspective on owner and partner performance assessment and management can bring an added dimension. The coordination of risk management in fashion and textiles (FTs) supply chain organized as a VE is studied in this paper. The aim of this study is to find proper decision mechanisms that can improve the overall performance of risk management for the whole VE as well as each member. For the risk management problem in VE, a centralized mechanism is given as the base case, and then a distributed decision-making (DDM) mechanism with incentive scheme is introduced to establish a practicable strategic partnership. Under the DDM mechanism, a relationship performance definition that incorporates the financial dimension is investigated. For the two resulting optimization problems, a particle swarm optimization (PSO) algorithm is designed. In the numerical examples, the study shows that the DDM mechanism with incentive scheme can improve the overall benefit of risk management beyond the centralized one. Additionally, sensitivity analysis is conducted with respect to the bonus parameter, and suggestions are made for further research.

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Profit and Risk Sharing in a Virtual Enterprise

Cited by 8 publications

References 19 publications

Mechanism Design of Fashion Virtual Enterprise under Monitoring Strategy

Mechanism Design of Fashion Virtual Enterprise under Monitoring Strategy

Study on revenue sharing contract in virtual enterprises

A Coordination of Risk Management for Supply Chains Organized as Virtual Enterprises

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