The Specific Investment Incentive Contract Design Of Logistics Outsourcing Based On Principal-Agent Theory

Facing the fierce market competition, firms have started to focus on core competitiveness and put the limited resources into core areas to pursue cost reductions and greater efficiencies. For production firms, logistics outsourcing is the necessary choice to focus on the core business. But the―lock in‖risk produced by specific investment in logistics outsourcing often blocks the development of 3PL enterprises. Outsourcing contracts clearly provide the rights,responsibilities and profit of both sides and connect the two parties together, so the design of the outsourcing contract will greatly influence the cooperation of the two parties.Based on the Principal-Agent Theory, the paper first analyses the specific investment incentive contract design of the 3PL under symmetric information and asymmetric information with the combination of Transaction Cost Theory. By building and solving of the model, the paper gets the optimal contract design and the optimal specific investment level, and then analyses how the risk preference of the two sides influence the contract design and investment level. The paper finds that when the outsourcing company is risk aversion under asymmetric information, the optimal outsourcing contract requires the 3PL enterprise to share more logistics output and meanwhile take more risk. In addition, the paper analyses how the comparative industry information added in the contract will effect the construction of the contract and the specific investment level, and finds that the incentive strength of the contract can be improved when the comparative industry information is written in the contract. Finally, the paper expands the model to multi-stage logistics outsourcing and studies how the length of cooperation will influence the specific investment level of 3PL enterprise. The study finds that when the logistics outsourcing activity is multi-stage, the 3PL enterprise tends to invest more in the early stage, and the investment level declines with the extension of cooperation.