The Impact of Overconfidence on Supply Chain Incentive Contract under Double-sided Moral Hazard

This paper analyses the impact of retailer overconfidence psychology on incentive contract for a manufacturer-retailer supply chain, where product quality is affected by the manufacturer and the retailer's behaviors. There exists double-sided moral hazard in the supply chain. Using principal-agent model, this paper builds incentive contracts under symmetric and asymmetric information situations respectively. The results show that under information symmetry retailer overconfidence has no effect on optimal sharing rate, effort levels and the manufacturer's expected profit, and under information asymmetry, higher retailer overconfidence increases the manufacturer's expected profit and reduces agent cost.