Principal-agent theory based risk allocation model for virtual enterprise

Min Huang, Guike Chen, Wai-Ki Ching, Tak Kuen Siu

Research output: Contribution to journalArticlepeer-review


In this paper, we consider a risk analysis model for Virtual Enterprise (VE) by exploring the state of the art of the principal-agent theory. In particular, we deal with the problem of allocating the cost of risk between two parties in a VE, namely, the owner and the partner(s). We first consider the case of a single partner of VE with symmetric information or asymmetric information and then the case of multiple partners. We 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 we consider the case of multiple principal with potentially many partners based on common agency.
Original languageEnglish
Pages (from-to)241-249
Number of pages9
JournalJournal of service science and management
Issue number2
Publication statusPublished - 2010


  • Virtual Enterprise
  • Risk Allocation
  • Principal-Agent Theory
  • Risk Aversion
  • Common Agency


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