Suppliers-Manufacturers Cooperative Innovation Payment Contract Design

On the model of bilateral Moral Hazard the cooperative product innovation and payment contract design in the supply chain have been studied. The effort of the suppliers and the manufacturers under the Moral Hazard-free condition always exceeds that when the Moral Hazard exists. Meanwhile, in the payment contract design under the Moral Hazard condition, the two involved parties' profit transfer is realized through suppliers' offering of the interim product price to manufacturers. According to the products' observable ultimate market demand, the optimal payment contract design is constructed under the bilateral Moral Hazard from the perspective of suppliers. In the payment contract, the distribution ratio of both parties' marginal profit is in ratio to each party's effort.