Analysis of the equity preference influence in customer participation incentives

In this paper, equity preference is introduced into the customer participation (CP) incentive problem and new principal–agent models are built. The proposed models are different from the Holmstrom and Milgrom's models (1987) because of the consideration of equity preference, which emphasize the...

Full description

Saved in:
Bibliographic Details
Published in:Economic modelling 2014-08, Vol.41, p.1-8
Main Authors: Zhang, De-Peng, Yang, Chen-hui, Zhang, Feng-Hua
Format: Article
Language:English
Subjects:
Agency theory
Customer participation (CP)
Customers
Decision analysis
Economic incentives
Economic theory
Equity
Equity preference
Incentives
Innovation
Mathematical problems
Optimization model
Preferences
Principal-agent theory
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:In this paper, equity preference is introduced into the customer participation (CP) incentive problem and new principal–agent models are built. The proposed models are different from the Holmstrom and Milgrom's models (1987) because of the consideration of equity preference, which emphasize the material utility and equitable distribution of customers. By assuming that the incentives that firms pay to customers have the same effect on monetary incentives, the optimal incentives are discussed, in which the equilibrium solutions are explored and the respective impact of horizontal equity preference and vertical equity preference on CP incentives are compared. The proposed models are validated by numerical experiments in the product enhancement project of a large software enterprise in Guangzhou. It can be demonstrated that 1) asymmetric information induces lazy behaviors of customers concerning vertical equity preference; 2) horizontal equity preference promotes the work enthusiasm of customers in CP more than self-interest does; and 3) it is more conducive to obtain a much bigger expected income when firms employ customers with horizontal equity preference to participate in innovation process. •Asymmetric information induces lazy behaviors of customers having vertical equity.•Horizontal equity preference promotes work enthusiasm more than self-interest does.•Firms employ horizontal equity customers can obtain much bigger expected income.•The models are validated by numerical experiments in a product enhancement project.
ISSN:0264-9993
1873-6122
DOI:10.1016/j.econmod.2014.04.018