Information and incentives in computing services supply: The effect of limited system choices

Every organization has only limited computing resources that need to be shared by members of the organization. Rationing mechanisms, such as pricing, usually are used to regulate the demands for such resources. However, to derive an effective mechanism for determining the usage or the scale of an organization's computing service is difficult, since there are many informational and incentive problems that need to be overcome. By incorporating these problems into a game-theoretic model, this study analyzes the effects of limited system choices on an organization's net value generated from computing service. Based on the mechanism design approach, the optimal incentive compatible mechanism is derived and contrasted with the case where the IS department is evaluated as a profit center. The results show that limited system choices can have significant effects on the value generated by an organization's computing service. Also, depending on whether the IS department is governed by the optimal mechanism or is evaluated as a profit center, the effects of limited system choices can be different. Managerial implications derived from the study are provided.