【Time】June 14th, 2013 (Friday)  14:00 ~ 15:00   

【Venue】Room N412, Shunde Building

【Speaker】Prof. Susan Xu, Penn State University

【Title】Strategic Outsourcing Contract Participation and selection under cost uncertainty

【Abstract】Motivated by wide-spread outsourcing practices, this paper studies how a pre-outsourcing firm (client)  facing uncertain operating costs selects an outsourcing contract between two  contract types offered by different vendors, where a vendor will offer a contract  if the expected profit of the contract satisfies  its reservation value. We propose a real options model to determine  the  optimal  policy structure  for  both  the client and the vendors.  We also  investigate  comparative statics of the client or vendor's optimal policy with respect to key system inputs.  

The numerical results demonstrate that the cost of making a suboptimal %decision on  either contract selection or outsourcing timing  is significant. Our results  help managers gain a better understanding on the closely intertwined relationship between  the client's contract selection policy  and a vendors' contract participation policy.