Incentives for Quality through Endogenous Routing

This paper examines how internal competiton and judicious rework allocation can improve qualty and bottom line results. It is motivated by the practive of a service operations firm, Memphis Auto Auctions. MAA uses a non conventional rework allocation process, according to which each team is paid only if the work is of good quality. All payments for units that are reworked are made to the competing (other)team. This internal competition contrasts with the conventional one, that assigns rework back to the original one. In this paper, we investigate quality improvement incentives of the this rework allocation and payment scheme.