The role of business insurance in managing a manufacturer’s product quality risk

Chen, Jing; Wei, Hang; Xie, Lei

doi:10.1016/j.orl.2017.10.006

Cited by 6 publications

(11 citation statements)

References 13 publications

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“…Yang et al (2021) explore the role of cancelability in trade credit insurance and its operational implications. Our paper is most closely related to Chen et al (2017), Chen et al (2021), andSerpa andKrishnan (2017), who also study the role of insurance on managing quality risk. Serpa and Krishnan (2017) examine how business insurance can be strategically used as a commitment mechanism to prevent excessive free-riding of quality improvement in a multifirm setting.…”

Section: Literature Reviewmentioning

confidence: 80%

“…Our paper complements the aforementioned literature by focusing on how risk aversion affects a manufacturer's preference on the strategies of managing product quality risk. Chen et al (2017) investigate how business insurance helps risk-averse manufacturers hedge product quality risk. However, they exclude the operational strategy to isolate its effect and concentrate on the role of business insurance.…”

Section: Literature Reviewmentioning

confidence: 99%

“…However, they exclude the operational strategy to isolate its effect and concentrate on the role of business insurance. We build on Chen et al (2017) to explore the relationship of inspection and insurance. Our paper is also closely related to Dong and Tomlin (2012) and Dong et al (2018), who consider a setting where risk-neutral firms can purchase interruption insurance and/or deploy operational measures such as storing inventory or taking preparedness actions that reduce the expected interruption length.…”

Section: Literature Reviewmentioning

confidence: 99%

“…The security load 𝜃 accounts for the fixed transaction costs of providing insurance and can be set by financial institute as the profit rate of the insurance contract Serpa and Krishnan (2017). Due to an one-to-one mapping between 𝜃 and 𝜏 by setting 𝜃 = 𝜏/𝜇, we restrict our analysis to the proportional premium which has been modeled in the literature by Dong et al (2018), Serpa andKrishnan (2017), andChen et al (2017). Note that, 𝜇 is the expected claim with an insurance contract (d, L).…”

Section: Product Recall Insurancementioning

confidence: 99%

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Optimal strategy in managing product quality risk for a risk‐averse manufacturer: Prevention or mitigation?

Chen

Wei

Xie

2021

Naval Research Logistics

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We explore a single-period manufacturing system in which component quality is random and a risk-averse manufacturer decides whether to procure these components from an upstream supplier. We find that product recall insurance could significantly relieve financial pressure for a manufacturer with a high or medium risk aversion. Interestingly, as external failure cost becomes larger, the manufacturer should invest more in inspecting components than enlarging the coverage of insurance. Conversely, when component quality level becomes higher, the manufacturer would purchase an insurance with a larger coverage and set a smaller inspection level. We also find that product recall insurance and incoming inspection are substitutes when the manufacturer has a low risk aversion. While, for a manufacturer with a medium risk aversion, product recall insurance and incoming inspection become complements if the cost of product recall insurance is high.

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Section: Literature Reviewmentioning

confidence: 80%

Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Section: Product Recall Insurancementioning

confidence: 99%

See 2 more Smart Citations

Optimal strategy in managing product quality risk for a risk‐averse manufacturer: Prevention or mitigation?

Chen

Wei

Xie

2021

Naval Research Logistics

Self Cite

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“…The pure premium represents the expected compensation to the farmer, and management fees and risk additional premium accounts for costs that are proportional to the pure premium. Therefore, based on the actuarially fair principle [14,19,53], the yield uncertainty premium per unit area satisfies…”

Section: Notations and Model Setupmentioning

confidence: 99%

Optimal strategies for a capital constrained contract-farming supply chain with yield insurance

2021

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We consider a capital-constrained contract-farming supply chain with a risk-averse farmer and a risk-neutral agro-dealer, where the farmer faces some yield uncertainty that can be covered by insurance. Using the Stackelberg model, we derive the optimal strategies on the insured level, production and wholesale price. The result shows that farmers with low risk aversion tend not to be insured, while those with high risk aversion tend to insure. Further analysis indicates that, as the degree of the farmer's risk aversion increases, the farm size decreases, but the yield per unit area and the wholesale price of the agricultural product increases. In addition, yield insurance and premium subsidies can lead to a decrease of the yield per unit area. However, the expansion of the farm size can compensate for the inhibitory effect of the decrease of yield per unit area on the total yield, and thus the total yield increases. We also find that when the premium subsidy rate is low, the yield insurance's value to farmers is negative. Moreover, the yield insurance's value to farmers increases with respect to the bank's interest rate.

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The value of product recall insurance in a price competition with financially constrained suppliers

Chen

Wei

et al. 2023

European Journal of Operational Research

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The role of business insurance in managing a manufacturer’s product quality risk

Cited by 6 publications

References 13 publications

Optimal strategy in managing product quality risk for a risk‐averse manufacturer: Prevention or mitigation?

Optimal strategy in managing product quality risk for a risk‐averse manufacturer: Prevention or mitigation?

Optimal strategies for a capital constrained contract-farming supply chain with yield insurance

The value of product recall insurance in a price competition with financially constrained suppliers

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