Abstract: The incentive contract is an important factor for logistics servicesupply chain, which will affect its whole performance. In the paper, aiming tothe problem of asymmetric information among the members, we firstly constructthe principal-agents model for multiple suppliers when the integrator gives an incentiveby the testability of logistics service. Then, we have done a comparativeanalysis between the two different contracts and address the factors and methodaffecting contract. Finally, we put forward some advices so as to allot inreason the output of logistics service supply chain and realize its holisticoptimization.

Key words: Logistics Service Output; Measurability; Principal-agent;Incentive Contract

1 Introduction

For several years, as globalization ofeconomic and intensification of market competition, logistics customers needhigher and higher request. In order to adopt to the change, logisticsenterprises gradually evolve to logistics service supply chain (LSSC) which iscomposed of logistics service supplier, logistics service integrator andcustomer including manufacturer or retailer. Under the LSSC mode, the logisticsservice integrator is core enterprise which provides integrated logistics servicesolution scheme to costumers and tailors the basic and advanced logisticsservice to them (Andersson, 2002).

Now, in the framework of economic ofinformation many scholars studied LSSC from some viewpoints and gained somepurposes. According to Grovesscheme, an incentive mechanism of information share in LSSC is elaborated on (Feldmann,2003). In a study (Wei, 2000), the author develop a game-theoretic model thatstudies the contract design problem of a third party logistics buyer when she/heis faced with a third party logistics provider and the quality of and the costof the service provided are private information to the latter. There is also astudy on incentive mechanism of the fourth party logistics subcontract withprincipal-agent theory (Wang, 2006). Recently, aimed to the procurement oflogistics service, we analyzed four different market types by using signal gameprinciple (Zhang, 2006).

In essence, all the authors assume that the outputof logistics service may be observed independently. However, when LSSC provideslogistics service for their customer, all members in fact created a jointproduction — ensuring that customer gets the right products to the right placeat the right time, and at the right cost, all with the help of the LSSC. Thus,it is very difficult to independently observe the output of every member inLSSC and then bring a challenge about constructing an incentive contract. Inthe paper, we will import the testability of logistics service output into twodifferent principal-agents models for multiple suppliers. Then, we have done acomparative analysis between the two different contracts in order to provide adecision-making reference for logistics service integrator (LSI).

2 Principal-AgentsModel

Generally, LSSC includes two kinds ofparticipants, a LSI and some logistics service integrator (LSS). After shesigns a contract about logistics service with logistics customer, LSI will designa solution for logistics service and merge resources and capability of LSS inorder to put the solution into practice. LSS only takes on one or a fewlogistics function, such as transportation, storage, distribution and package.Amidst the principal-agents model in this paper, LSI is regard as principal andsome LSSs as agents. When agents realize their own expected utility, theprincipal can gain her own maximal objective by the incentive mechanism toagents. In light of the characteristic of LSSC we put out some assumption asfollows: