Principal-Agent Theory Based Risk Allocation Model for Virtual Enterprise
In this paper, the authors consider a risk analysis model for Virtual Enterprise (VE) by exploring the state of the art of the principal-agent theory. In particular, they deal with the problem of allocating the cost of risk between two parties in a VE, namely, the owner and the partner(s). They first consider the case of a single partner of VE with symmetric information or asymmetric information and then the case of multiple partners. They 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 they consider the case of multiple principal with potentially many partners based on common agency.