Service guarantee and optimal payout models

This paper evaluates both the optimal service level and optimal economic payout in service payout models. A service guarantee level is explicitly taken into consideration to obtain the optimal payout. In this study, we consider a generic model to provide insights into the dynamic interaction between the service guarantee and optimal payout levels. Parametric analyses show that when the demand payout coefficient is high, the impact of the payout is positive only if the payout rate is high enough.