Contracts to motivate R&D investment in supply chain under double moral hazard condition

In this paper, we model a manufacturer that contracts with one designer. When the designer´s R&D investment and manufacturer´ R&D investment both are unobservable information, the manufacturer and designer may incur moral hazard after contracting. The manufacturer designs the revenue sharing contract in order to reduce the double moral hazard. We find that the fraction of supply chain revenue the designer keeps only depended on his degree of important in outcome. By reasonable distributed supply chain revenue the contract can coordinate the supply chain system. However, the manufacturer must give more fraction of revenue to designer than its contribution and the system´s first-best R&D cannot be achieved.