Abstract
Problem definition: We examine how a profit-driven firm (she) can motivate better social responsibility (SR) practices by a supplier (he) when these practices cannot be perfectly observed by the firm. We focus on the firm’s investment in the supplier’s SR capabilities. To capture the influence of consumer demands, we incorporate the potential for SR information to be disclosed by the firm or revealed by a third party. Academic/practical relevance: Most firms have limited visibility into the SR practices of their suppliers. However, there is little research on how a firm under incomplete visibility should (i) invest to improve a supplier’s SR practices and (ii) disclose SR information to consumers. We address this gap. Methodology: We develop a game-theoretic model with asymmetric information to study a supply chain with one supplier and one firm. The firm makes her investment decision given incomplete information about the supplier’s current SR practices. We analyze and compare two settings: the firm does not disclose versus she discloses SR information to the consumers. Results: The firm should invest a high (low) amount in the supplier’s capabilities if the information she observes suggests the supplier’s current SR practices are poor (good). She should always be more aggressive with her investment when disclosing (versus not disclosing). This more aggressive strategy ensures better supplier SR practices under disclosure. When choosing between disclosing and not disclosing, the firm most likely prefers not to disclose when the supplier’s current SR practices seem to be average. Managerial implications: (i) Greater visibility helps the firm to better tailor her investment to the level of support needed. (ii) Better visibility also makes the firm more “truthful” in her disclosure, whereas increased third-party scrutiny makes her more “cautious.” (iii) Mandating disclosure is most beneficial for SR when the suppliers’ current practices seem to be average.
Topics

No keywords indexed for this article. Browse by subject →

Cited By
111
Metrics
111
Citations
35
References
Details
Published
Nov 01, 2020
Vol/Issue
22(6)
Pages
1268-1286
Cite This Article
Tim Kraft, León Valdés, Yanchong Zheng (2020). Motivating Supplier Social Responsibility Under Incomplete Visibility. Manufacturing & Service Operations Management, 22(6), 1268-1286. https://doi.org/10.1287/msom.2019.0809
Related

You May Also Like

Channel Dynamics Under Price and Service Competition

Andy A. Tsay, Narendra Agrawal · 2000

703 citations

Risk Ownership in Contract Manufacturing

Sezer Ülkü, L. Beril Toktay · 2007

652 citations

On-Demand Service Platforms

Terry A. Taylor · 2018

552 citations

Industry 4.0: Opportunities and Challenges for Operations Management

Tava Lennon Olsen, Brian Tomlin · 2020

548 citations

Toward a Theory of Behavioral Operations

Francesca Gino, Gary Pisano · 2008

428 citations