Coordination for Assembly

42 Pages Posted: 24 Jan 2017 Last revised: 3 Jul 2023

See all articles by Wen Zhang

Wen Zhang

Baylor University - Hankamer School of Business

Sina Shokoohyar

University of Texas at Dallas - Department of Information Systems & Operations Management

Anyan Qi

University of Texas at Dallas - Naveen Jindal School of Management

Elena Katok

University of Texas at Dallas

Date Written: May 14, 2023

Abstract

Modern assembly projects usually involve many interrelated tasks outsourced to suppliers/contractors, and the project outcome depends on all contractors' minimum output. To avoid project failure, the original equipment manufacturer (OEM) often uses a risk-sharing contract, under which the payment to the contractors depends on the minimum output. However, under the risk-sharing contract, contractors may fail to achieve the Pareto optimality because they may select the least efficient secure equilibrium due to strategic uncertainty. To mitigate this coordination failure, we introduce a new information-feedback mechanism that involves informing contractors about the progress made by other contractors in multiple feedback periods. We fully characterize contractors' subgame-perfect secure equilibrium strategies under the feedback mechanism and identify the minimum feedback periods to achieve the Pareto optimality. We further show that this number increases with the number of contractors. We finally test the mechanism in the laboratory with human subjects and find qualitative support for the model. Our study delivers three main messages. Firstly, contractors may fail to coordinate. Secondly, the OEM should require periodic feedback among contractors throughout the project to mitigate coordination failure. Thirdly, in order to address the growing challenge of coordinating multiple contractors, the OEM should offer additional feedback periods and encourage contractors to take prompt action during earlier periods.

Keywords: Behavioral Operations Management, Equilibrium Selection, Coordination, Information Feedback, Non-Cooperative Game Theory

Suggested Citation

Zhang, Wen and Shokoohyar, Sina and Qi, Anyan and Katok, Elena, Coordination for Assembly (May 14, 2023). Available at SSRN: https://ssrn.com/abstract=2889868 or http://dx.doi.org/10.2139/ssrn.2889868

Wen Zhang

Baylor University - Hankamer School of Business ( email )

One Bear Place #98006
Waco, TX 76798
United States

Sina Shokoohyar

University of Texas at Dallas - Department of Information Systems & Operations Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Anyan Qi (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Elena Katok

University of Texas at Dallas ( email )

Jindal School of Management
800 W. Campbell Dr.
Richardson, TX 75080
United States

HOME PAGE: http://www.utdallas.edu/~ekatok/

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
397
Abstract Views
2,505
Rank
136,291
PlumX Metrics