Optimal repair of degrading computers under asymmetric information and incentive incompatibility

This paper presents the optimal repair policy of a firm's computer system in the presence of asymmetric information and incentive incompatibility. It applies the resource allocation model developed by Cheng et al. to analyze the impact of asymmetric information and incentive incompatibility on the repair policy of a firm's fault-tolerent computer system whose capacity degrades over time. A general methodology is presented for deriving the optimal repair policy for the firm's computer system by integrating the results from the resource allocation problem and the stochastic model describing the degrading capacity behavior of the computer system. The optimal repair policy is demonstrated via numerical results that offer useful insights. In particular, the conventional wisdom of having a largest asymptotic expected computer capacity does not guarantee a desirable long-run minimum cost to the organization.