Interaction of Service Providers in Task Delegation Under Simple Payment Rules

We consider a scenario where an application service provider (ASP) hires a network service provider (NSP) to deliver its service and pays for the employment of the NSP. We study the interaction between these two providers under simple payment rules as a Stackelberg game. We first show, under the assumption that the ASP knows the true utility function of the NSP, the existence of a unique equilibrium of the game and investigate its properties when the NSP is risk averse. Then, we relax the assumption that the ASP is aware of the NSP's true utility function and point out a potential source of difficulty in designing a pricing mechanism that encourages truth-telling by the NSP.