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2003•Industrial Engineering and ManagementRequires access

Application of Principal-agent Theory in Cost Reduction

Zhang Xiao-ou

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Abstract

The principal-agent relation between managers and producers is analyzed with the principal-agent theory in information economics, and measures of managers to stimulate producers to reduce cost is discussed. The models under symmetric information condition (without moral hazard) and asymmetric information condition (with moral hazard)are given, and the strategies used by managers under the two conditions to stimulate producers to reduce cost are discussed respectively.

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What this paper is about

The principal-agent relation between managers and producers is analyzed with the principal-agent theory in information economics, and measures of managers to stimulate producers to reduce cost is discussed. The models under symmetric information condition (without moral hazard) and asymmetric information condition (with moral hazard)are given, and the strategies used by managers under the two conditions to stimulate producers to reduce cost are discussed respectively.

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Available abstract

The principal-agent relation between managers and producers is analyzed with the principal-agent theory in information economics, and measures of managers to stimulate producers to reduce cost is discussed. The models under symmetric information condition (without moral hazard) and asymmetric information condition (with moral hazard)are given, and the strategies used by managers under the two conditions to stimulate producers to reduce cost are discussed respectively.

Key concepts: Moral hazard, Principal (computer security), Principal–agent problem, Information asymmetry, Cost reduction, Information economics, Reduction (mathematics), Relation (database)

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