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Capacity investment in supply chain with risk averse supplier under risk diversification contract

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  • He, Juan
  • Ma, Chao
  • Pan, Kai

Abstract

In a supply chain with one risk neutral manufacturer and one risk averse supplier, we propose a risk diversification contract under which the manufacturer shares the losses of excess capacity and inadequate capacity with the supplier, and a side payment is transferred from the supplier to the manufacturer. Under the Conditional Value-at-Risk (CVaR) criterion, risk diversification contract has a Pareto improvement and can allocate system performance appropriately in both symmetrical and asymmetrical demand information. In addition, this contract can coordinate supply chain and has a larger market than an option, capacity reservation, payback, revenue-sharing contract under the symmetrical demand information.

Suggested Citation

  • He, Juan & Ma, Chao & Pan, Kai, 2017. "Capacity investment in supply chain with risk averse supplier under risk diversification contract," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 106(C), pages 255-275.
    • Handle: RePEc:eee:transe:v:106:y:2017:i:c:p:255-275
    DOI: 10.1016/j.tre.2017.08.005
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