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Risk assessment and profit sharing in business networks

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  • Lo Nigro, Giovanna
  • Abbate, Lorenzo
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    Abstract

    Nowadays network is the preferred governance form to conduct economic transactions. Network solution allows to reach flexibility maintaining cost and quality level. Since network concept refers to a great variety of organizational hybrids it is possible to choose the one that fits better market requirements. The new trends in inter-organization relationships push towards network solutions: companies are interested in relationships with partners and customers to overcome resource dependence, to enter too risky market or simply differentiate their business portfolio. The proposed research focuses on the network concept aiming at highlighting threats and opportunities to investigate the double nature of the risk concept. Network structures offer flexibility and higher profit as a consequence and business risk sharing opportunity. These two aspects (profit and risk) are strictly related and have to be considered together to depict a complete scenario; this implies that risk assessment and management in network environment cannot neglect profit sharing or, in other words, that profit sharing mechanisms should use risk as driver. In this context our research proposes a methodology to measure risk taking into account network peculiarities; risk estimation is a basic step to evaluate the opportunity cost of capital needed to compute the network Net Present Value (NPV) that is assumed as base in the profit sharing process. The profit sharing process has been tackled using the Shapley value approach that is inspired to the fairness principle while the opportunity cost of capital is assessed using the Capital Asset Pricing Model (CAPM).

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    Bibliographic Info

    Article provided by Elsevier in its journal International Journal of Production Economics.

    Volume (Year): 131 (2011)
    Issue (Month): 1 (May)
    Pages: 234-241

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    Handle: RePEc:eee:proeco:v:131:y:2011:i:1:p:234-241

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    Web page: http://www.elsevier.com/locate/ijpe

    Related research

    Keywords: Network organization forms Network risk Profit sharing Shapley value CAPM;

    References

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    1. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, 09.
    2. T. K. Das, 1996. "Risk Types And Inter-Firm Alliance Structures," Journal of Management Studies, Wiley Blackwell, vol. 33(6), pages 827-843, November.
    3. Das, T. K. & Teng, Bing-Sheng, 2001. "A risk perception model of alliance structuring," Journal of International Management, Elsevier, vol. 7(1), pages 1-29.
    4. Hallikas, Jukka & Virolainen, Veli-Matti & Tuominen, Markku, 2002. "Risk analysis and assessment in network environments: A dyadic case study," International Journal of Production Economics, Elsevier, vol. 78(1), pages 45-55, July.
    5. James G. March & Zur Shapira, 1987. "Managerial Perspectives on Risk and Risk Taking," Management Science, INFORMS, vol. 33(11), pages 1404-1418, November.
    6. Tang, Christopher S., 2006. "Perspectives in supply chain risk management," International Journal of Production Economics, Elsevier, vol. 103(2), pages 451-488, October.
    7. Link, Patrick & Marxt, Christian, 2004. "Integration of risk- and chance management in the co-operation process," International Journal of Production Economics, Elsevier, vol. 90(1), pages 71-78, July.
    8. Claude Ménard, 2004. "The Economics of Hybrid Organizations," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 160(3), pages 345-, September.
    9. Hallikas, Jukka & Karvonen, Iris & Pulkkinen, Urho & Virolainen, Veli-Matti & Tuominen, Markku, 2004. "Risk management processes in supplier networks," International Journal of Production Economics, Elsevier, vol. 90(1), pages 47-58, July.
    10. Ojala, Mika & Hallikas, Jukka, 2006. "Investment decision-making in supplier networks: Management of risk," International Journal of Production Economics, Elsevier, vol. 104(1), pages 201-213, November.
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    Cited by:
    1. D’Ignazio, Alessio & Giovannetti, Emanuele, 2014. "Continental differences in the clusters of integration: Empirical evidence from the digital commodities global supply chain networks," International Journal of Production Economics, Elsevier, vol. 147(PB), pages 486-497.

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