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Social preferences and supply chain performance: an experimental study

Author: Loch, Christoph ; Wu, YaozhongINSEAD Area: Technology and Operations Management Series: Working Paper ; 2006/56/TOM Publisher: Fontainebleau : INSEAD, 2006.Language: EnglishDescription: 31 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: Supply chain contracting literature has traditionally focused on aligning incentives for economically rational players. Recent work has hypothesized that social preferences, separate from economic incentives, may influence behavior in supply chain transactions. Social preferences refer to intrinsic concerns for the other party's welfare in the case of a positive relationship and intrinsic desires for a higher relative payoff compared with that of the other party when status is salient. This article provides experimental evidence that social preferences systematically affect economic decision making in supply chain transactions. Specifically, supply chain parties deviate from the predictions provided by self-interested profit-maximization models, such that relationship preference promotes cooperation, individual performance, and high system efficiency, sustainable over time, whereas status preference induces tough actions and reduces both system efficiency and individual performance.
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Supply chain contracting literature has traditionally focused on aligning incentives for economically rational players. Recent work has hypothesized that social preferences, separate from economic incentives, may influence behavior in supply chain transactions. Social preferences refer to intrinsic concerns for the other party's welfare in the case of a positive relationship and intrinsic desires for a higher relative payoff compared with that of the other party when status is salient. This article provides experimental evidence that social preferences systematically affect economic decision making in supply chain transactions. Specifically, supply chain parties deviate from the predictions provided by self-interested profit-maximization models, such that relationship preference promotes cooperation, individual performance, and high system efficiency, sustainable over time, whereas status preference induces tough actions and reduces both system efficiency and individual performance.

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