Author(s)

Min Huang, Guike Chen, Wai-Ki Ching, Tak Kuen Siu

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In this paper, we consider a risk analysis model for Virtual Enterprise (VE) by exploring the state of the art of the principal-agent theory. In particular, we deal with the problem of allocating the cost of risk between two parties in a VE, namely, the owner and the partner(s). We first consider the case of a single partner of VE with symmetric information or asymmetric information and then the case of multiple partners. We also build a model for the optimal contract of the risk allocation based on the principal-agent theory and analyze it through specific example. At last we consider the case of multiple principal with potentially many partners based on common agency.

Virtual Enterprise, Risk Allocation, Principal-Agent Theory, Risk Aversion, Common Agency

M. Huang, G. Chen, W. Ching and T. Siu, "Principal-Agent Theory Based Risk Allocation Model for Virtual Enterprise," Journal of Service Science and Management, Vol. 3 No. 2, 2010, pp. 241-249. doi: 10.4236/jssm.2010.32030.