| Article ID: | iaor1989463 |
| Country: | Netherlands |
| Volume: | 40 |
| Issue: | 2 |
| Start Page Number: | 169 |
| End Page Number: | 185 |
| Publication Date: | May 1989 |
| Journal: | European Journal of Operational Research |
| Authors: | Ronen Joshua, Balachandran Kasi R. |
The problem of pricing for products under subcontracting is set in an agency theory format. Characteristics of decentralization, moral hazard and adverse selection are inherent in this problem. Optimal incentive compensation function and the transfer price are analyzed. The results are illustrated with an example of logarithm utility functions.