A principal-agent model for hazmat transportation in China with risk perception and regulatory policy

Abstract

This paper develops one basic and two improved principal-agent models to analyse the hazmat transportation (HT) under a regulatory policy in China. Compared to the basic principal-agent model, the improved models focus on two important elements of HT: harmful risk and government regulatory policy. Under the contract, the principal is the shipper and the agent is the carrier. First, we study the implications of harmful properties of hazmat transported by the agent on the principal's contract. Second, we consider the regulatory policy with penalty from the government, which can drive the agent to meet the entry threshold of qualifications. Finally, an optimal contract is presented to promote the safety of HT. A good regulatory policy will reach a win-win solution both for the enterprises and the government. We conduct 12 numerical experiments for parameter analysis. The methodology and results provide a quantitative approach with significant insights for decision-makers.