Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/287986 
Year of Publication: 
2022
Citation: 
[Journal:] Production and Operations Management [ISSN:] 1937-5956 [Volume:] 32 [Issue:] 4 [Publisher:] Wiley [Place:] Hoboken, NJ [Year:] 2022 [Pages:] 1243-1261
Publisher: 
Wiley, Hoboken, NJ
Abstract: 
This study examines human ordering behavior in service‐level inventory contracts, a class of contracts important in practice. Studies of wholesale price contracts find that people tend to place orders that are suboptimal and biased toward mean demand. Unlike wholesale price contracts, service‐level contracts can be parameterized such that they have steep expected profit functions, making the expected profit‐maximizing order more salient, in the sense that deviations from optimal ordering are more costly. Utilizing an analytical model and results from existing literature, we hypothesize that people will order closer to optimality under service‐level contracts with steeper expected profit functions. In a laboratory experiment, we find that subjects achieve up to 97.2% supply chain efficiency under a steep service‐level contract, compared with 92.2% under a flat service‐level contract, and steep service contract ordering also exhibits lower variability. Our results suggest that managers can benefit by designing service‐level contracts with higher penalty costs and lower fill rates.
Subjects: 
behavioral operations
experimental economics
service‐level contracts
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article
Document Version: 
Published Version

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.