Revenue-sharing vs. cost-sharing contracts in motivating supplier corporate social responsibility

Abstract

Purpose

To motivate the supplier to exert more corporate social responsibility (CSR) effort, the manufacturer offers it either a revenue sharing contract or a cost sharing contract. We study the contract choice of the manufacturer.

Design/methodology/approach

We develop game theoretic models to investigate the manufacturer’s optimal contract choice and examine whether there is a conflict of contract preference between the manufacturer and the supplier.

Findings

First, the revenue sharing contract has more strict conditions regarding the unit cost of the supplier’s CSR effort and the manufacturer’s retail price. Second, the cost sharing contract enables the manufacturer to achieve a “win-win” performance in terms of both profitability and CSR effort. Finally, the supplier prefers the cost sharing contract when the manufacturer’s price is low, otherwise, it prefers the revenue sharing contract.

Originality/value

Differing from the papers on CSR, our paper focuses on the supplier CSR management problem, and analyzes the optimal contract to motivate the supplier to exert more CSR effort.