TOWARDS AN ECONOMIC-THEORY OF INCENTIVES IN JUST-IN-TIME MANUFACTURING

Just-in-time manufacturing is widely acknowledged as decreasing the costs of production, but also as increasing the quality. This is surprising: we would expect that adding a constraint on the supplier - that production be conducted at very specific times - would induce a decrease in quality. This paper argues that this paradox can be solved by noticing that the incentives of the buyer are changed by JIT manufacturing. He will be more willing to impose penalties on the supplier.