Regulation mechanism research on hidden irregularity of dairy processing enterprises based on Principal-agent Theory

Frequent dairy products quality safe accidents make the government and consumers concern more about hidden irregularities in dairy supply chain. As a very important link in dairy supply chain, the behavior of dairy processing enterprise influences dairy products quality. It´s necessary for government to apply fit regulation mechanism to prevent against hidden irregularity of dairy processing enterprises. The purpose of this paper is designing effective hidden irregularity regulation mechanism of dairy processing enterprise based on the basic of Principal-agent Theory to prevent hidden irregularity. In this paper, it assumes that government is first principal, regulation department is secondary principal and enterprise is the agent, then we create and analyze hidden irregularity regulation model. Finally, the optimal regulation mechanism and relative properties are obtained. The results indicate that the impact factors of hidden irregularity of processing enterprises are award incentive, excess income, penalty amount and finding probability. Only government increases the supervision intensity and strength against inferior dairy products and provides award incentive for regulation department, regulation department will find irregularity actively and enterprise will choose regularity strategy. The paper supplies theoretical basis and practical guide to promote dairy products quality for government.