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.