Decentralization Policies for Supply Chain Investments under Asymmetric Information

Per Joakim Agrell, Peter Bogetoft

Research output: Contribution to journalJournal articleResearchpeer-review


Supply chains need specific investments for improved performance in terms of lead-time, cost, and quality. We study the contractual choice of a coordinator to either centralize or delegate the investment decision in a three-stage chain. The analysis derives closed-form results for the economic performance of three decentralized contracting schemes under asymmetric information on investment cost, as well as the optimal full revelation results. The results show that the observed practice of tier-1 delegated investments leads to relatively poor performance because of underinvestment. We illustrate the findings with the Boeing 787 debacle.
Original languageEnglish
JournalManagerial and Decision Economics
Issue number3
Pages (from-to)394-408
Number of pages15
Publication statusPublished - Apr 2017

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