Effort decision in cooperative R&D with moral hazard

Cooperative research and development (R&D) is commonly adopted in recent supply chain (SC). The effort level decision of supplier under moral hazard is discussed in this paper and the objective is to find the optimal decision strategy of suppliers in cooperative R&D. Applying maximal principle, the optimal decision strategy has been obtained. The results indicate that, due to moral hazard, the supplier makes more effort but suffers from less profits as the payment for the policy to incite the manufacturer. A numerical example is given to illustrate the strategy.