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Supply chain coordination with insurance contract. (English) Zbl 1188.90034
Summary: We propose an insurance contract under which the supplier shares the risk of overstock and understock with the retailer, improving the efficiency of the supply chain with a newsvendor-type product. We first show that the insurance contract could coordinate the supply chain, and obtain bargaining solution in the supply chain model. Then we investigate the effects of agents’ risk aversion on the supply chain model and acquire the Pareto-optimal solution through the mean-variance approach. After that, we compare the insurance contract with the revenue sharing contract, focusing particularly on their differences. Finally, extensive numerical studies are conducted, and managerial implications are proposed.

90B06 Transportation, logistics and supply chain management
91A80 Applications of game theory
91B30 Risk theory, insurance (MSC2010)
90B05 Inventory, storage, reservoirs
91B26 Auctions, bargaining, bidding and selling, and other market models
Full Text: DOI
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