Salesforce Compensation and Two‐Sided Ambiguity: Robust Moral Hazard with Moment Information

Li, Zhaolin; Kirshner, Samuel N.

doi:10.1111/poms.13412

Cited by 8 publications

(2 citation statements)

References 61 publications

(113 reference statements)

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“…Moreover, our research does not assume additional complexities stemming from moral hazard. Indeed, there is an emerging literature (e.g., Chu and Lai 2013, Dai and Jerath 2013, Dai and Jerath 2016, Dai et al 2021, Li and Kirshner 2021, where managers must design incentive contracts (often quota bonuses) to coordinate agents' unobservable marketing efforts with inventory decisions. Interestingly, this literature assumes a normative newsvendor.…”

Section: Uncertainty In Overconfidence and Loss Aversionmentioning

confidence: 99%

Managing Overconfident Newsvendors: A Target‐Setting Approach

Bai

Kirshner

2021

Production and Operations Management

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E xperimental results support that overconfident newsvendors deviate from the optimal inventory levels to place orders closer to the mean of demand distributions, thereby lowering profits. To improve performance, we investigate whether nonstandard preferences based on prospect theory can manage overconfident newsvendors. We develop a framework where a manager determines a profit-based target, which serves as a reference point in the newsvendor's utility function. We show that target-setting can induce optimal orders for low-margin products. We extend our model to a duopoly and show that the type of competition determines whether target-setting improves performance beyond the monopolist setting. Decentralized competition, where competing newsvendors have different managers, reduces the effectiveness of target-setting. However, centralized competition, where competing newsvendors share the same manager, increases the range of profit margins within which target-setting can achieve the system-optimal order quantities. We compare profit-margin targets with gross-profit targets throughout our analysis. Although the targets offer similar performance, we find that profit-margin [gross-profit] targets dominate for extremely [moderately] low-margin products when the manager is uncertain about the newsvendor's overconfidence level. However, when managing a newsvendor with an uncertain degree of loss aversion, we find that profit-margin targets offer greater benefits regardless of the product's profitability.

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Section: Uncertainty In Overconfidence and Loss Aversionmentioning

confidence: 99%

Managing Overconfident Newsvendors: A Target‐Setting Approach

Bai

Kirshner

2021

Production and Operations Management

Self Cite

View full text Add to dashboard Cite

show abstract

“…The first of the existing studies on the principal-agent relationship considering quotas considered cost limits [ 29 ], jointly defining the agents' costs. This differs from our focus on quota production.…”

Section: Introductionmentioning

confidence: 99%