Abstract: There exists risk caused by asymmetric cost information when customer enterprise is carrying out application service outsourcing. Focused on this problem, the outsourcing menu contract is designed to incentive the ASP to show the true cost information and pay the optimal effort level under the circumstance of cost-effectiveness parameter and effort level owned by the ASP cannot be observed by the customer enterprise. The conclusions imply that revenue-sharing proportion is the decreasing function of cost-effectiveness parameter, degree of risk aversion, and the variance of output; the reward which customer enterprise pays to ASP will be used not only to compensate reservation utility, service cost, but also to compensate the risk cost and information rent; the risk cost is decreasing with the degree of risk aversion, the variance of output, and increasing with the cost-effectiveness parameter; the information rent is decreasing with degree of risk aversion, the variance of output and cost-effectiveness parameter.

Key words: ASP (application service provider), outsourcing contract, contract menu, mechanism design