Impact of risk aversion on optimal decisions in supply contracts
We introduce the concept of conditional value-at-risk as the evaluation criterion in a supply contract model. We first derive the manufacturer's optimal decisions and then analyze the impact of risk aversion on the manufacturer's decisions. We follow by conducting numerical experiments to observe how the manufacturer's risk attitude affects his decisions. We obtain results that characterize the explicit relationship between the manufacturer's risk attitude and his optimal decisions. We also show the dependence of the decision variables on the price and cost parameters, which is seldom given in the literature.
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