Pareto optimality and contract dependence in supply chain coordination with risk‐averse agents

Abstract

In recent years, research on supply chain coordination (SCC) with risk-averse agents has received much attention. Previous studies are primarily concerned with the coordination of a single manufacturer-single retailer supply chain using different definitions of SCC. What is lacking is a comprehensive analysis of the achievability of SCC. In this paper, we provide a systematic analysis of SCC with risk-averse agents. We see that three definitions of SCC have been proposed in the literature to investigate SCC with risk-averse agents, among which the one based on Pareto optimality (PO) stands out.Here we explore the challenges of using the PO criterion. Specifically, we first examine the standard two-agent supply chain under the mean-variance (MV) and meandownside-risk (MDR) objectives. What we find is that the achievability of PO depends on the contract type. The wholesale price contract even with a side payment may not lead to PO. Also, unlike under MV where risk sharing is Pareto optimal, we observe that the least risk-averse agent must take all the risk to achieve SCC under MDR. Importantly, we extend our analysis to multiretailer, multimanufacturer, and multitier supply chains. In each case, we characterize the efficient Pareto-optimal manifold in the multidimensional space and design coordinating contracts that result in Pareto-optimal actions acceptable to all agents. We also discover that identifying PO across all the contract forms is difficult when some other risk-aversion criteria are considered. We conclude by providing suggestions and methods for SCC when we are unable to identify PO.

Pricing and coordination in a green supply chain with a risk-averse manufacturer under the reference price effect

“…Price factors also affect the purchase behavior of products. Based on the existing literature on the reference price effect (Malekian and Rasti-Barzoki, 2019;Ma and Hu, 2020) and risk aversion (Xiao and Yang, 2008;Zhang et al, 2022), this paper explored how supply chain participants adjust their optimal pricing strategies when manufacturer risk aversion occurs under the reference price effect. Therefore, this paper can offer product pricing and contract selection suggestions for green supply chain companies.…”

Pricing and Financing Strategies of Dual-Channel Green Supply Chain with Risk Aversion and Consumer Preferences

“…To ensure that the demand of profits gained by the manufacturer and the retailer become non-negative, 0 p w c    must be satisfied. Assumption 6: This paper employs the mean-variance method to evaluate the risk aversion in green supply chain members (Zhang et al, 2022). Additionally, when the manufacturer exhibits a risk-averse a itude, its utility is defined as…”

Unfair and Risky? Profit Allocation in Closed-Loop Supply Chains by Cooperative Game Approaches

“…With similar arguments in studies [35][36][37][38][39][40], it is assumed that a risk-averse retailer evaluates his or her profit on the basis of a mean-variance function. The utility function U(L) of Retailer L considering its profit is presented as below:…”