With the advancement of specialized division of work, supplier innovation plays a crucial role in promoting the development of enterprise innovation. On the one hand, suppliers hold industry-leading professional knowledge and technology, and are familiar with the technical process and operation and management mode of downstream manufacturing enterprises, and their innovation activities have the characteristics of low-risk and quick success; on the other hand, suppliers' participation in product innovation not only enhances the key components, but also effectively enhance the innovation efficiency and shorten the product development cycle. However, as the innovation costs are borne by suppliers, while manufacturers can enjoy a lot of benefits from supplier innovation, the mismatch between innovation cost inputs and beneficiaries leads to reduced incentives for suppliers to innovate. Therefore, choosing the right contracts to incentive suppliers to innovate is a realistic problem that the industry needs to address. However, this model of co-operation is affected by managerial optimism. Managerial optimism, as a psychological characteristic of decision makers, usually refers to managers' positive expectations of the future, i.e., overestimating market conditions. In supply chain innovation activities, manufacturers may overestimate the effect of product innovation on demand enhancement, which leads manufacturers to blindly pursue innovation activities and make decisions that are detrimental to their own performance and the overall performance of the supply chain. In the context of considering manufacturer managerial optimism, how are suppliers' innovation decisions affected? Whether manufacturers incentive suppliers to innovate and what kind of contract is chosen to do so are the key questions that focus the attention of this paper.

      Based on this background, this paper considers a supply chain system consisting of a single supplier and a single manufacturer, incorporates managerial optimism. Firstly, we describe the model and make a series of reasonable assumptions, construct the supply chain decision-making model under rational and optimistic scenarios of the manufacturer, and calculate the optimal solutions by using the backward induction method. Through  comparing the results of manufacturer’s rational and manufacturer' s optimistic scenarios to investigate the effects of managerial optimism on the decision-making and profitability of the supply chain members; Secondly, the cost-sharing contract, revenue-sharing contract and two-part tariff contract are introduced to incentive supplier to innovate. Finally, comparing the optimal decisions under the three contracts with the no-contract scenario to explore the incentive effects of the three contracts under managerial optimism as well as the optimal incentive contract choices for the manufacturer. We further analyze the impact of managerial optimism on environmental performance, consumer surplus and social welfare in the numerical simulation section.

     The following management insights were obtained in response to the study findings: (1) Manufacturers should actively assess the real consumer quality preference in the market through data analysis or questionnaire surveys to  avoid misjudging the market demand and losing profits due to over-optimism. (2) Optimistic manufacturers should flexibly adjust the contract strategy to stimulate suppliers innovation when cooperating with supplier. When consumer quality preference is too low or too high, choosing the two-part tariff contract can stimulate suppliers innovation; when consumer quality preference is at a medium level, choosing the cost-sharing contract can stimulate suppliers innovation. (3) From the perspective of enhancing manufacturers' own profits, manufacturers tend to choose two-part tariff contract when fixed transfer costs are low, and manufacturers tend to choose cost-sharing contract when fixed transfer costs are high.

      In summary, managerial optimism has a significant impact on the innovation decisions of firms in supply chains. The conclusions of this paper provide a reference guide for manufacturers to incentive suppliers innovation under managerial optimism.