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<doi>0602-cd</doi>
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<article-title>A Principal-agent Approach for Designing Maintenance Service Contracts</article-title>
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<author>Jo&#227;o Mateus Marques de Santana<sup>1,a</sup>, Rafael Luiz Vel&#244;zo Santiago<sup>1,b</sup>, Isis Didier Lins<sup>1,c</sup>, M&#225;rcio das Chagas Moura<sup>1,d</sup> and Enrique L&#243;pez Droguett<sup>2</sup></author>

<aff><sup>1</sup>Center for Risk Analysis and Environmental Modeling, Department of Production Engineering, Universidade Federal de Pernambuco &#8211; Brazil</aff>

<email><a href="mailto:joaomateusmsantana@gmail.com"><sup>a</sup>joaomateusmsantana@gmail.com</a></email>

<email><a href="mailto:rafa.velozo@hotmail.com"><sup>b</sup>rafa.velozo@hotmail.com</a></email>

<email><a href="mailto:isis.lins@ceerma.org"><sup>c</sup>isis.lins@ceerma.org</a></email>

<email><a href="mailto:marcio@ceerma.org"><sup>d</sup>marcio@ceerma.org</a></email>

<aff><sup>2</sup>Department of Mechanical Engineering, University of Chile &#8211; Chile</aff>

<email><a href="mailto:eld.umd@gmail.com">eld.umd@gmail.com</a></email>

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<title>ABSTRACT</title>
<p>When a maintenance service contract is signed, the effectiveness in terms of repair rapidity of maintenance crews is not known by the owner of the equipment. Efficient agents, to perform a quick maintenance service can consume a great amount of resources in exchange for a small marginal payoff. This situation can encourage an efficient firm to behave as an inefficient one. Thus, the customer runs the risk of delays on the execution of repairs by the agent, who may provide repairs at a rate lower than its actual capacity in returning the device to the operational state. To handle this issue, this paper presents a principal-agent approach for designing a maintenance contract, where a customer (principal) plans to outsource maintenance servicing to an agent (maintenance firm). This paper will design a contract under the assumptions of information asymmetry to find optimal pricing and incentives to maximize the customers&#39; payoff, even without knowing the actual level of performance of the contracted firm. The optimal contract menu will prevent efficient firms from taking a contract designed for inefficient firms, and vice-versa. To demonstrate the applicability of the model, an example is presented and a sensitivity analysis is carried out.</p>
<p><italic>Keywords: </italic>Game theory, Principal agent, Information asymmetry, Maintenance outsourcing, Maintenance services, Contract design.</p>
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