Reciprocity towards Incentives for Supply Chain Restoration Investment: Models, Experimental Studies and Surveys

Abstract

In this thesis, we evaluate the use of incentives offered beyond a contract compared with those within a contract to motivate supplier investment in restoration capability, which can serve as a signal of reciprocity. In the rst chapter, we analytically examine to what extent a Direct incentive, which is paid by the manufacturer unconditionally prior to disruption, differs from an Indirect incentive, which is promised to be paid when a disruption occurs in a dyadic supply chain. We specify the conditions under which the two types of incentive are economically equivalent for both a manufacturer and a supplier. More importantly, we derive a ratio of investment amount to incentive value as a proxy of supplier reciprocity towards incentives
offered by the manufacturer. Our analytical results indicate that reciprocal concern drives higher investment amount per unit incentive under Direct incentive than under Indirect incentive. The results further suggest that the manufacturer should always offer a Direct incentive as long as it is economically equivalent to an
Indirect one, and should do so particularly when an ambiguous prospect for recovery outcomes is anticipated with less optimism.

The following chapter examines supplier reciprocal behaviour towards manufacturer incentives in a laboratory setting. The experimental study confirms prior analytical results that a Direct incentive can induce stronger reciprocal responses as opposed to an Indirect incentive. We reveal that the offer of a Direct incentive particularly strengthens suppliers reciprocal behaviour in long-term relationships. This result provides evidence for a synergy by coupling Direct incentives with long-term relationships. Furthermore, we observe that subjects decisions in repeated game conditions are associated with learning behaviours, in which the selfish motive of maximising their own benets can be restrained when they repeatedly interact.

In the third chapter, we evaluate the moderating effects of perceived relational factors on the relationship between manufacturer incentives and observed supplier investments in the experiment. A post-experiment survey was developed to capture individual differences in subjects perceptions of the buyer-supplier relationship. We provide evidence that a supplier's investment decision towards its manufacturer's incentive offered is moderated by self-perception and felt obligation of the relationship. The underlying determinants of the perceived relational factors are explored. We suggest that ambiguity and other-regarding preferences are associated with self-perception; whereas, perpetrator justice sensitivity is related to the felt obligation
for reciprocity in the buyer-supplier relationship.