Capital-constrained supply chain with altruism and reciprocity

Abstract

Recently, supply chain finance has attracted increasing attention from the scientific community. However, it lacks serious consideration of social preference in supply chain finance. In this paper, we examine the effects of altruism and reciprocity on the efficiency of a capital-constrained supply chain consisting of a manufacturer with no original capital and a retailer with limited capital in a perishable product market with uncertain demand. The retailer may be in need of short-term financing. We show that, when the retailer has not enough money for his ideal inventory, financing will significantly improve his utility and supply chain efficiency, and global altruism will improve his financing willingness. Moreover, when the retailer borrows a full loan or has more than enough capital, both the global altruistic behavior and the intrinsic altruistic behavior allow sustaining more efficiency of supply chain than with selfish ones, but a more reciprocal behavior improves efficiency if and only if the manufacturer is intrinsically more altruistic than the retailer. Nevertheless, it is different from what may be expected that when the retailer borrows a limited loan or does not borrow but use up all the capital, altruism and reciprocity have no effect on supply chain efficiency. This article thus effectively encourages capital-constrained supply chains to incorporate financial consideration into production decisions and properly guides the firms in the chains either to act more altruistically or to reciprocate more the attitude of their partners.