IDEAS home Printed from https://ideas.repec.org/a/taf/tprsxx/v57y2019i6p1772-1796.html
   My bibliography  Save this article

Supply chain management using put option contracts with information asymmetry

Author

Listed:
  • Preetam Basu
  • Qindong Liu
  • Jan Stallaert

Abstract

We study the problem of hedging demand uncertainty in a supply chain consisting of a risk-neutral supplier and a risk-averse retailer under a buyback contract. We use semi-variance of the possible profit values as a measure of the retailer’s risk attitude. We first study the setting where the supplier can observe the risk type of the retailer and find that in this case the supplier can design a buyback contract that extracts the maximum profit for the supplier. When the retailer’s type is unobservable, a new contract needs to be designed (the ‘option buyback contract’) and we show that in this case the retailers will self-select and chose an order quantity that maximises the total supply chain profit. Through numerical computations, we analyse the dynamics between the benefits of hedging risk, information rent and the retailer’s type, and outline cases when, depending on the shape of the reservation utilities of the retailers, it is too costly for the supplier to manage risk. In conclusion, our results show that whereas semi-variance has appealing properties as a measure of risk, its use introduces analytical challenges that can only be overcome through numerical computation.

Suggested Citation

  • Preetam Basu & Qindong Liu & Jan Stallaert, 2019. "Supply chain management using put option contracts with information asymmetry," International Journal of Production Research, Taylor & Francis Journals, vol. 57(6), pages 1772-1796, March.
    • Handle: RePEc:taf:tprsxx:v:57:y:2019:i:6:p:1772-1796
    DOI: 10.1080/00207543.2018.1508900
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/00207543.2018.1508900
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00207543.2018.1508900?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Li, Yemei & Shan, Yanfei & Ling, Shuang, 2022. "Research on option pricing and coordination mechanism of festival food supply chain," Socio-Economic Planning Sciences, Elsevier, vol. 81(C).
    2. Meng, Qingchun & Kao, Zhiping & Guo, Ying & Bao, Chunbing, 2023. "An emergency supplies procurement strategy based on a bidirectional option contract," Socio-Economic Planning Sciences, Elsevier, vol. 87(PA).
    3. Andrea C. Hupman & Jay Simon, 2023. "The Legacy of Peter Fishburn: Foundational Work and Lasting Impact," Decision Analysis, INFORMS, vol. 20(1), pages 1-15, March.
    4. Pan Guo & Yanlin Jia & Junwei Gan & Xiaofeng Li, 2021. "Optimal Pricing and Ordering Strategies with a Flexible Return Strategy under Uncertainty," Mathematics, MDPI, vol. 9(17), pages 1-12, August.
    5. Avinadav, Tal & Chernonog, Tatyana & Meilijson, Isaac & Perlman, Yael, 2022. "A consignment contract with revenue sharing between an app developer and a distribution platform," International Journal of Production Economics, Elsevier, vol. 243(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:tprsxx:v:57:y:2019:i:6:p:1772-1796. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/TPRS20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.