Incentive Contracts for a Queueing System with a Strategic Server: A Principal-Agent Perspective

Abstract

Queueing systems with strategic servers are common in the service industry. The self-interested service rate decision of the strategic server will be detrimental to the queueing system. To improve the service rates, designing incentive contracts for the server from the queueing system owner’s perspective is critical. This study investigates the incentive contracts of queueing systems under exogenous and endogenous price scenarios. The unit-price and cost-sharing contracts are introduced to coordinate the queueing system. The effects of pricing mechanisms and contract types on the queueing system are investigated theoretically and experimentally. The results reveal that regardless of whether the price scenario is exogenous or endogenous, the cost-sharing contract is more effective than the unit-price contract in incentivizing the server to make a service effort. The cost-sharing contract with endogenous price can reduce the service price. The cost-sharing contract can boost profits for both the owner and server, albeit with conditions.