Interaction of service providers in task delegation under simple payment rules

We consider a scenario where an application service provider (ASP) hires a network service provider (NSP) to deliver its service and pays for the employment of the NSP. We study the interaction between these two providers under simple payment rules as a Stackelberg game. We first show, under the assumption that the ASP knows the true utility function of the NSP, the existence of a unique equilibrium of the game and investigate its properties when the NSP is risk averse. Then, we relax the assumption that the ASP is aware of the NSP´s true utility function and point out a potential source of difficulty in designing a pricing mechanism that encourages truth-telling by the NSP.