Breaking the winner's curse in outsourcing

Bin Jiang, Srinivas Talluri, Tao Yao, Yongma Moon

Research output: Contribution to journalArticlepeer-review

7 Scopus citations


This research utilizes real options theory to investigate how to break the winner's curse in contracting through effective contracting mechanisms. We focus on two contracting approaches: flexible price contract and gain-sharing contract. For reasons of analytical tractability, we first utilize the geometric Brownian motion as the dynamic model to obtain closed-form solutions to break the outsourcing winner's curse. Subsequently, we extend our model to the mean-reverting process and provide numerical examples to verify the validity of our closed-form results, which have not previously been presented in the outsourcing literature. Finally, we provide prescriptions for the problem of the winner's curse in outsourcing.

Original languageEnglish
Pages (from-to)573-594
Number of pages22
JournalDecision Sciences
Issue number3
StatePublished - Aug 2010


  • Flexible price contract
  • Gain-sharing contract
  • Geometric brownian motion
  • Mean-reverting process
  • Outsourcing
  • Winner's curse


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