Design of Creative Incentive Contract of Cultural and Creative Industry Chain from Dual Perspective

HUANG Geng(黄 更), FENG Xinqun(冯信群), ZHUGE Yang(诸葛阳)*, WANG Pei(王 沛)

1 College of Fashion and Design, Donghua University, Shanghai 200051, China 2 Shanghai International College of Design and Innovation, Tongji University, Shanghai 200092, China

Abstract: The duality of cultural and creative industry can maintain the independence of creative birth and management as well as taking into account of the artistic and marketability of creativity. Income distribution contracts that link the design process to the commercial value of creative ideas can solve the problem of quantitative incentives for creative subjects. At the same time, it can encourage creative subjects to complete commercial and artistic design activities. The principal-agent relationship between the upstream and downstream of the industrial chain is utilized to stimulate the creation of creative ideas in line with market conditions, so as to solve the problem of duality reconciliation of cultural and creative industries. Through the design of the cultural creative industry chain dual task creative incentive contract, in the process of encouraging creative design subjects to complete the design of the work to give consideration to the coordination of duality. By analyzing the influences of design capability, risk, cost coefficient and binary correlation on the optimal investment level and the optimal risk sharing level of creative subjects in two types of design activities, the input transfer caused by the variation of the above conditions is further discussed.

Key words: duality; creative industry; creative business value; incentive contract

Introduction

Under the background of the era of knowledge economy, the cultural creative industry has stirred up an economic wave on a global scale.In the year of 2016, it created an output value of 2.25 trillion dollars, exceeding the global output value of telecommunications industry and the GDP of India.The cultural creative industry created 29.5 million job opportunities in that year, and its number of employed people accounted for nearly 1% of the total population of the world.The cultural creative industry is an ambidexterity performance of highly commerciality and artistry[1], and deviation from either side will lead to the realization of creative value to be blocked.The business model of industry chain, which is oriented by division of labor and linked by contract cooperation, provides a preliminary idea to solve the conflict of ambidexterity, while encouraging creative enterprises to produce works with both commercial and artistic characteristics is the way to further break through obstacles.Based on this, it is of great significance to study the creative incentive contract of cultural creative industry chain in the perspective of ambidexterity to enhance the innovation vitality and economic benefits of creative enterprises, and in turn to accelerate the development of the cultural creative industry.

The concept of duality is widely used to refer to that an organization can simultaneously execute the strategic actions that are mutually diverged and competing.The ambidexterity problem of the cultural creative industry is embodied in two dimensions: one is to maintain the independence of the born of creativity and the operation of creativity; the other is to consider both the artistry and marketability of excellent creativity[2-3].At present, most of the academic studies on the conflict of ambidexterity remain on the first dimension.Scholars generally agree that the professional division of labor and agency cooperative relationship between the upstream and downstream of the cultural creative industry chain can effectively maintain the independence of the born of creativity and the operation.Some scholars proposed to divide each link of the creative industry value chain from the perspective of modularization or unitization[4-5].Cultural creative enterprises would be divided into enterprises responsible for creative source, creative processing, creative derivation, and creative market operation according to different positions and functions in the industry chain[4-5].Leading by creativity, the industry chain drove the manufacturing of creative products, motivated the development of derivative industries, and realized the interactive appreciation of creativity and commerce[6].The module units enabled different enterprises to achieve a state of co-existence, co-development and co-evolution based on the principal-agent relationship[7-8].For this state, Yangetal.[9]called it a formal cluster value creation mechanism, that is, the micro-units established a long-term stable identity relationship with other enterprises through formal agreements or contracts in the process of design, research and development, production, and marketing,etc.[9]Lampel and Germain[10]pointed out that, compared with traditional industries, cultural creative industry had higher requirements for the operation of industry chain, and higher requirements for the complementarity and coherence between creativity and operation.Regarding the resolution of the conflict of ambidexterity, the existing references pay more attention to the vertical separation of creation and management, but rarely involve the targeted studies of horizontal ambidexterity reconciliation.Moreover, there is the problem of insufficient quantitative research as well, and there is no answer concerning “what kind of profit allocation relationship could stimulate the birth of creativity the most under the condition of creative generation and independent operation.”

Based on the dual-tasks principal-agent theory, the design of income distribution contract linked with the commercial value of creativity can not only solve the problem of quantitative incentives for creative subjects, but also motivate creative subjects to complete commercial design activities and artistic design activities, thereby reconciling the ambidexterity conflicts of creativity.The dual-task principal-agent problem has been widely studied in academic circles.Aghion and Stein[11]considered the contradiction between short-term sales profit and strategic growth, and designed a two-phase multi-tasks contract based on this.Kaarboe and Siciliani[12]considered the multi-task principal-agent problem of the medical service supply chain, and designed a contract model and verified its positive incentive effect.Hosseinian and Carmichael[13]established an optimal linear incentive model for risk-neutral contractors.Wang and Hou[14]considered the modularity of business processes and designed a dual-process outsourcing incentive contract model considering the impact of modularity of business processes, and passed the model.Luo and Chen[15]subdivided the acts of subsidiaries into exploratory act and development act, and conducted compensation contract design.However, the existing research lacks of the organic integration with cultural creative industry, not to mention the research on the dual-task principal-agent problem based on the ambidexterity conciliation of cultural creative industry.

To sum up, this article aims to stimulate the creation of creative products in line with the market conditions through vertical separation of creative design subject and creative operating subject, and horizontal separation of artistic design and market-oriented design by making use of the principal-agent relationship between the upstream and downstream of the industry chain.Therefore, the problem of duality reconciliation of cultural creative industry can be solved, which should construct a dual-tasks principal-agent model to study the optimal risk sharing and benefit distribution mechanism of two design activities under the condition of information asymmetry.Based on this, it intends to solve the influence of variables such as design cost, and risk aversion degree, on the optimal contract and creative design subject’s optimal behavior.

1 Creative Incentive Model of Cultural Creative Industry Chain

1.1 Description and assumptions of the model

It considers the creative industrialized and commercialized activities carried out by creative design subject(hereinafter referred to as “design subject”)and creative operating subject(hereinafter referred to as “operating subject”)of the cultural creative industry chain through principal-agent cooperation.The operating subject, as the principal, conducts creative outsourcing, and concludes incentive contracts in which fixed investment is linked with the expected performance with the design subject, as the agent.This aims to motivate the design subject to burst out excellent creative ideas that are both artistic and marketable(for example, the animation production and distribution companies would entrust the animation creation teams to conduct original animation creation, and promise to offer funding support and future performance distribution).After accepting the excellent creativity provided by the design subject, the operating subject shall be responsible for the subsequent creative industrialization process, including the production, issuance, and operation of creative products and derivatives at all levels.

An important characteristic of cultural creative industry lies in its high risks.High risks make the expected performance of creativity industrialization uncertain: a creative idea with huge energy devotion may face a commercialization crisis, while a mediocre idea may be welcomed by the market.This may lead to the moral hazard of inaction by upstream design subject.Therefore, the incentive contract can satisfy the optimal risk sharing of both parties.

The implementation process of incentive contract is divided into the following five steps.

(1)At the initial stage of creative outsourcing, the operating subject designs an incentive contract including basic fixed investment, the expected income distribution method of creative products, and the payment time node according to the optimal reward of its own.

(2)The design subject weights the cost and its own benefits first to decide whether to accept the contract.They will choose to sign the contract when the expected return is not less than the retained return, and then the contract will go into effect.

(3)The design subject shall carry out both the artistic design activity and market-based design activity respectively, and choose the optimal devotion of the two design activities with the goal of maximizing its own expected benefits until the final fitting, completion, and submission of the creativity.

(4)The operating subject conducts sufficient productization and industrialization operation of the creativity with the aim to maximize its own profits.

(5)After reaching the time node as stipulated in the contract, the operating subject should verify the project benefits and pay the remuneration to the design subject according to the contract.

The research assumptions of this article are as follows.

Assumption1The risk of operating subject is risk neutral, the risk of the design subject is avoided, and the Arrow-Pratt absolute risk aversion degreeρ>0[16]remains the same.

Assumption4The cultural creative industry has risks in many aspects, such as the risk of creative design failure, the risk of market recognition, the risk of malicious competition, and the risk of intellectual property right caused by creativity disclosure, misappropriation, and imitation.These risks affect the two design activities of creative design[18].In addition, the unique risks of artistic design include the risk of overlength of creation cycle due to perfectionism; the risks of market-oriented design include the legal and regulatory risks caused by the vulgarization of demand.

Assumption5The operating subject designs a linear contractW=α+β1s1+β2s2, whereWis the remuneration of the design subject,αis the fixed investment provided by the operating subject for the design subject to guarantee the most basic expenditure of the creative design, andβ1andβ2(0≤β1≤1，0≤β2≤1)are the incentive coefficients of the two design activities, respectively.

1.2 Establishment and solution of the model

Upon expiry of creative industrialization period agreed by both parties, the actual benefits obtained by the design subject are

r=W-C(h1,h2)=α+β1s1+β2s2-

(1)

For the risk-averse design subject, its certainty-equivalent incomeCEis equal to its expected return minus its risk cost[19], and the risk costCRof the design subject is assumed as

(2)

The certainty-equivalent income of the design subject is

(3)

The increased revenue of the operating subject during the period of commercialization is

R=S-W=-α+(1-β1)s1+(1-β2)s2.

(4)

Since the operating subject is risk-neutral, its expected utilityE(R)is equal to its expected return, that is

E(R)=-α+(1-β1)ψ1h1+(1-β2)ψ2h2.

(5)

s.t.

h1,h2∈arg maxCE

(IC)

(IR)

By solving the constraint(IC), the respective optimal devotion of the two design activities can be obtained as

(6)

The optimal choice for the operating subject lies in paying the design entity the remuneration that is equal to its reserved revenue level, therefore, the constraint(IR)is taken as the equal sign, and brought into the objective function together withh1*andh2*, which are obtained by solving the constraint(IC), thereby eliminatingα,h1*andh2*, and getting the equivalence problem:

(7)

By solving the problem(7), the respective optimal incentive coefficient of the two design activities can be obtained as

β1=

(8)

β2=

(9)

By substituting Eqs.(8)and(9)into Eq.(6), the optimal devotion made by the design subject for the two design activities can be obtained as

(10)

(11)

2 Model Analysis

The design level, cost consumption and risk exposure of design subjects in the two design activities, as well as their own appetites, and the level of duality relevance directly affect their risk sharing and input level in the two design activities in the creative incentive model of the creative industry chain.Propositions 1-5 describe each of these effects, and the proofs of each proposition are detailed in Appendix A.

2.1 Influence of design capacity on optimal devotion and incentive intensity

Proposition1ψmis positively correlated withhmandβm, negatively correlated withhnandβn(mandnrepresent one task and another task respectively, and the same as below).

The artistic attainments and market awareness of the design subject are the key factors affecting whether it can product high quality creative ideas.If the design subject has strong artistic attainments, the artistic appreciation and artistic value of his/her works will be greatly enhanced, thereby guiding the following of corresponding audience and increasing the return expectations.Based on this, the design subject will make full use of the advantages of its own artistic attainments to increase the devotion of artistic design of the works and neglect the integration of the disadvantaged market-oriented design.The operating subject will also give high level incentives to such design activities because of the high contribution of artistic value.

If the design subject has outstanding awareness of market, his/her works will be able to reflect the preferences of the mass market better, thereby achieving higher economic benefits.Based on this, the design subject will pay more attention to the market research of the works, gradually increase the awareness of market, and weaken the level of devotion in artistic design.Thus, the operating subject will offer higher rewards to market-oriented design activities for the good fit between the works and the market.

2.2 Influence of cost coefficient on optimal devotion and incentive intensity

Proposition2lmis positively correlated withhmandβm，negatively correlated withhnandβn, wherein,βiandβjdecrease with the amplitudes of the changes ofli.

If the design subject pays a higher cost in the process of artistic design, it would be slower to improve the artistic attainments of the works, so his/her enthusiasm for creation would be reduced and transferred to the design of improving the market fit of the works, and then the operating subject would reduce the incentive on the task of artistic design dimension as well; if the design subject pays higher cost in the market fit design, which makes its works gradually deviate from the mass aesthetic, so its devotion in the market fit design would be further declined, but turn to conduct artistic design of the works.Therefore, he/she would get less incentive.

When the cost of a certain design activity is very high, it indicates that the design is greatly confused, and then such design is completely abandoned, which is not conductive to the balanced development of the two design activities.The operating subject should learn the situation of the works in a timely manner according to the market feedback, and pay full attention to the cost difference between the two design activities, reduce the design subject’s dislike on the confused design through adequate communication, psychological counseling, spiritual encouragement,etc., as well as fully understand and solve the cause of higher cost, and restart the two design activities when the cost falls within the acceptable range, so as to ensure the smooth execution of the incentive contract.

2.3 Influence of environmental uncertainty on optimal devotion and incentive intensity

The high risk of cultural creative industry makes the two design activities face the uncertainty of expectations.When the interference of artistic design is low, the return of such activity will be more predictable, so the design subject will have a higher enthusiasm for artistic design.As the risk of artistic design increases, the design subject’s enthusiasm for such activity decreases and turns to focus more on market-oriented design.The increased risks of either activity will cast a shadow over the overall prospects of the works and lower the market’s expectations for the works.Therefore, the operating subject will also lower the incentive intensity of the two activities, and the extent of the reduction will be gradually decreased.

When a design activity faces enough external interference, the design subject will completely give up the performance-oriented design devotion, and the operating subject will not continue to provide incentive measures, but just provide basic fixed guarantees, thereby design will be conducted by just relying on the design subject’s own initiative.If the operating subjects intends to restart the incentive effect, it should pay more attention to peer benchmarking in order to achieve the purpose of eliminating external risks through “relative performance comparison”, so as to show the degree of the devotion of the creative design subject more clearly and avoid “passive and slack” thoughts.

2.4 Influence of risk aversion degree on optimal devotion and incentive intensity

Proposition4ρis negatively correlated withhm，hn,βm, andβn.

Design subjects who dare to accept the challenges brought by uncertain spiritual demands in the market have a strong ability to resist the risks.Therefore, they often insist on designing works within the framework of their own creative idea, and make more devotion in both artistic and commercial design.If the design subject tends to avoid risks due to the fear of market uncertainty, it will also reduce the devotion in corresponding design and choose a more secure fixed financial support.

The characteristics of the design subject determine its risk aversion degree.For example, “Bohemian entrepreneur” pursues the principle of “art for art’s sake” and create boldly without considering the risk of market recognition[20]; singer-songwriters would dedicate in creation without expecting anything in turn when they are not famous enough, and then accumulate steadily and gained a sudden public recognition at a certain subsequent opportunity.Therefore, the operating subject should have a long-term vision when choosing partners, and choose the design subjects who refuse to bow to the market pressure and create boldly.

2.5 Influence of the ambidexterity relevance on optimal devotion and incentive intensity

The degree of mutual hindrance between the artistry and marketability of the design process of creative works is mainly considered by internal and external aspects: their own management level and the aesthetic vision of external audiences.The design subjects who have a high level of self-management, pay more attention to the management problem of ambidexterity coordination, and have a group of diversified audiences would face lower ambidexterity hindrance in the creation; on the contrary, if the design subject has a poor internal innovation management level in its organization and its works has a single group of audience, the design subject would face higher ambidexterity hindrance in the creation.

The higher the degree of ambidexterity hindrance, the smaller the proportion of the two design activities allocated to the design subject by the operating subject.If the degree of hindrance is further increased, the phenomenon of devotion transfer will occur: the devotion of the design subject made to the disadvantaged design activity will be gradually transferred to the advantaged design activity.If the creative design subject intends to take into account the ambidexterity to get a broad range of benefits, it can separate the art module and the market module by way of horizontal modularization[20]; if the operating subject pursues the effectiveness of incentives, it should give priority to the design subjects who consider ambidexterity, and take the design subject with higher ambidexterity barriers as supplemented when seeking partners.

3 Numerical Analysis

Fig.1 Relationship between ω and β1, β2, h1 under basic parameters

Figure 1 shows the situation where the values ofβ1andh1decrease first and then increase, the values ofβ2andh2decrease on the domain ofω∈(0, 1).Figure 1 shows that the dominant activity of the design subject is artistic design and the disadvantaged activity is market-oriented design.It can be inferred that, with the aggravation of mutual hindrance between the two design activities, the design subject will gradually draw part of its energy from market-oriented design to strengthen artistic design, the operating subject will keep the incentive of artistic design decreased slightly and then increased slightly while reducing the incentive intensity of market-oriented design.

Figure 2 shows the situation where the values ofh2decrease first and then increase, and the values ofβ1,β2andh2decrease on the domain ofω∈(0, 1).By comparing Fig.1 and Fig.2, it is easy to verify the statement of Proposition 1.As the market awareness of the design subject has been greatly improved, the design subject would be better at matching the market demand with the design of works, the market-oriented design activities have thus been transformed into advantageous activities, and the direction of devotion transfer has also changed.The operating subject have affirmed the necessity of market-oriented design, and thus increasedβ2compared to Fig.1.

Fig.2 Relationship between ω and β1, β2, h1, and h2 ，when ψ 2=1.2

Figure 3 shows the situation where the values ofh1decrease first and then increase, and the values ofβ1,β2andh2decrease on the domain ofω∈(0, 1).By comparing Fig.1 and Fig.3, it is easy to verify the statement of Proposition 2, and it can be seen that when the risk of market-oriented design is significantly increased, the variation extent ofβ2is significantly greater than that ofβ1, and the variation extent ofh2is also higher than that ofh1, indicating that under the condition of changes of market-oriented task risk, the extent of behaviors targeting to such activity by both the operating subject and the design subject is greater than that of artistic design activities.

Fig.3 Relationship between ω and β1, β2, h1, h2，when

The situation shown in Fig.4 is similar to that in Fig.1.By comparing Fig.1 and Fig.4, it is easy to verify the statement of Proposition 3.Because of the increase in the cost of market-oriented design, the disadvantages of such activity have been exacerbated.Therefore, both the horizontal intercept and the vertical intercept ofh2have been reduced.It is obvious from Fig.4 that under the condition of changes of the cost of market-oriented activities, the extent of behaviors targeting to such activity by both the operating subject and the design subject is greater than that of artistic design activities.

Fig.4 Relationship between ω and β1, β2, h1, h2，when l2=2

The situation shown in Fig.5 is similar to that in Fig.1.By comparing Fig.1 and Fig.5, it is easy to verify the statement of Proposition 4.Through comparison, it can be found that the direction of devotion transfer of the two design activities remains unchanged, indicating that risk appetite will not change the advantages and disadvantages of the tasks.After observing Fig.5, it is obvious that the rate of change ofβ1,β2,h1,h2is slower than that in Fig.1, which indicates that risk-averse design subjects have a lower level of intensity concerning response to ambidexterity hindrance.

Fig.5 Relationship between ω and β1, β2, h1, h2，when ρ=4

Figures 1-5 have proved the conclusion of Proposition 5 through the display of several situations, and it can be seen that: the adjustment ofψm,σm2, andlmcan change the advantages and disadvantages status of design activitiesmin the incentives.Moreover, the change amplitude ofhmandβmwill be greater thanhnandβn, but the change ofρcan not change the advantages and disadvantages status of the design activities.

4 Conclusions

This paper considers the problem of ambidexterity conflict between “artistry” and “marketability” of the cultural creative industry, and designs a dual-task creative incentive contract of cultural creative industry chain, aiming at encouraging the creative design subjects to consider the ambidexterity coordination in the process of completing the design of works.It studies the influences of the design subject’s design capacity, exposure to risks, cost coefficient and ambidexterity relevance in two design activities on the optimal devotion level and the optimal risk sharing level, and then discusses the phenomenon of devotion transfer caused by changes of the above-mentioned conditions.

If the creative design subject has superior capacity, lower cost, and less risk in a certain design activity, then it will invest more in such design activity.With the weakening of capability, the increase of cost, the increase of risks and the tendency of risk aversion, part of the devotion in such design activity will be transferred to another design activity; if the mutual hindrance of the two design activities increases, the creative design subject will shift its devotion from the disadvantaged activity to the advantaged activity, and finally may make it abandon the disadvantaged design activities completely.For the cultural creative industries with strong ambidexterity hindrance, the operating subjects should focus on fixed investment if they faced greater risks and risk aversion of design subject, otherwise, they should focus on incentive-oriented guidance.Based on the simplification of the demonstration, this model integrates the functions of all nodes other than the creative design subject in the cultural creative industry chain into the creative operating subject, and only considers the execution of one-phase contract.In the future, we may consider the research of multi-link industry chain that is closer to the real situation, and the research of dynamic multi-round iterative creative incentive contract.

AppendixA

ProofofProposition1Observe Eqs.(9)and(10).Ifl2ψ1<ψ2ω, thenl1ψ2<ψ1ω; otherwise,h1will always be less than 0.At this point,l1ψ2/ω<ψ1<ψ2ω/l2, andω2>l1l2can be deducted, which fails to meet the established conditions, sol2ψ1>ψ2ωandl1ψ2>ψ1ω,i.e.,l1ψ2/ω>ψ1>ψ2ω/l2.In this domain, it is obvious thath1is positively correlated withψ1.

The derivative ofψ1forβ1can be got as

The numerator part ofβ′1can be regarded as a parabola going upwards, and the vertical coordinate of the point of intersection with the ordinate axis is less than 0.According to its shape, it can be deducted thatβ′1is less than 0 first and then greater than 0 on(0,+∞),i.e.,β′1decreases first and then increases on(0,1).According to Eq.(7), whenψ1=0, andβ1is always greater than 0,β′1will always be greater than 0 in the effective domain ofψ1,i.e.,β1is positively correlated withψ1.

For the relationship betweenβ2,h2andψ1, please refer to the numerical analysis in the text.

ProofofProposition2As can be seen from Eq.(7),β1declines slowly with the increase ofl1; the first derivative ofl1forβ2is got as

Compared with Eq.(7), it can be seen thatβ′2andβ1have the same sign.Therefore, there is alwaysβ′2> 0,i.e.,m1is positively correlated withβ2.In addition, it can be seen by observingβ′2, the absolute value ofβ′2decreases with increase ofm1, so the decreasing amplitude ofβ2with the increase ofm1decreases gradually.

According to Eq.(6),l1is negatively correlated withh1, and the first derivative ofl1forh2is got as

Aslψ>ψωandlψ>ψω.

Therefore,h′>0,i.e.,σ2is positively correlated withh.

ProofofProposition4

Get the first derivative ofρforβ1:

Asρ> 0，β′1<0,i.e.,β1is negatively correlated withρ, similarly,β2is negatively correlated withρas well.

Get the first derivative ofρforh1:

ProofofProposition5Get the first derivative ofωforβ1:

The numerator ofβ′1is a parabola going downwards, and the axis of symmetry is located on the right side of the vertical axis and the vertical coordinate of the point of intersection with the ordinate axis is less than 0.Its two radicals are shown as