425. The Value of Information Design in Manufacturer Audit Selection: Self-Reporting vs. Active Inspection?
Invited abstract in session MC-18: OR for Sustainable Development III, stream OR for Sustainable Development.
Monday, 12:30-14:00Room: Esther Simpson 2.09
Authors (first author is the speaker)
| 1. | Jiaxuan Li
|
| Tianjin universiy |
Abstract
In responsible sourcing, when auditing suppliers with potential compliance risks, manufacturers face the decision of whether to allow suppliers to conduct and report their own internal audits or to engage third-party audit firms. While many studies highlight that internal audits can lead suppliers to overstate their compliance, resulting in inaccurate or misleading information, manufacturers such as Walmart and Nike still prefer to use internal audits. This raises two key questions: First, what motivates manufacturers to choose internal audits? Second, when should manufacturers opt for internal audits versus external audits?
This paper develops a game-theoretic model to explore how information design and transmission influence manufacturers' audit strategy decisions, considering the impact on corporate reputation. Our findings challenge conventional wisdom: internal audits are not inherently a bad choice. Although there is a risk of internal corruption, in some situations, allowing internal audits can be more effective—especially in minimizing hidden biases and improving information accuracy. Additionally, external audits are not a guaranteed solution; while they are perceived as independent, our study shows that the interaction between auditors and suppliers can still affect audit outcomes.
These findings offer a new perspective on information design in audit decision-making and provide theoretical support for responsible sourcing practices.
Keywords
- Risk Analysis and Management
- Sustainable Development
- Game Theory
Status: accepted
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