Incentive contract design in distribution supply chain with the overconfident retailer

This paper deals with the incentive contract design of two-echelon distribution supply chain consisting of a fully rational, risk-neutral manufacturer and an overconfident, risk-averse retailer. Two incentive models are established based on the manufacturer's full information and asymmetric information of the overconfident retailer's effort extent. The results show that the overconfident retailer has higher effort extent and lower wholesale price than the rational retailer under two information states; however, the influence of overconfidence extent on the transfer fee is varied with different information states; the manufacturer is always motivated to obtain the information of the retailer's effort extent and the motivation is increasing with the overconfidence extent.