Reference points in revenue sharing contracts—How to design optimal supply chain contracts

Michael Becker-Peth, UW Thonemann

Research output: Contribution to journalArticleAcademicpeer-review

69 Citations (Scopus)

Abstract

Coordinating supply chains is an important goal for contract designers because it enables the channel members to increase their profits. Recently, many experimental studies have shown that behavioral aspects have to be taken into account when choosing the type of contract and specifying the contract parameters. In this paper, we analyze behavioral aspects of revenue-sharing contracts. We extend the classical normative decision model by incorporating reference-dependent valuation into the decision model and show how this affects inventory decisions. We conduct different lab experiments to test our model. As a result, human inventory decisions deviate from classical normative predictions, and we find evidence for reference-dependent valuation of human decision makers. We also show how contract designers can use the insights we gained to design better contracts.
Original languageEnglish
Pages (from-to)1033-1049
Number of pages17
JournalEuropean Journal of Operational Research
Volume249
Issue number3
DOIs
Publication statusPublished - 2016

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