Effect of risk aversion on the performance of supply chain and carbon reducing initiatives under asymmetric information

Abstract

AbstractThis paper considers a supply chain in which the risk‐averse manufacturer invests in carbon emission reduction (CER) technology and the risk‐averse retailer makes green sales efforts to reduce carbon footprint. The results show that when the information is symmetrical, the two‐part tariff contract can eliminate the double‐marginalization effect. Moreover, when the information is asymmetric, the manufacturer encourages retailer to report true market size and improve green sales effort by providing an incentive contract. This menu of contract ensures the manufacturer obtains more utilities with low carbon emissions. In addition, through the analysis of risk aversion coefficients, we find that under centralized decision, with the improvement of risk aversion awareness, both supply chain players will reduce the green efforts. However, under asymmetric information, compared with the manufacturer, the retailer's higher risk aversion will have an opposite effect on the equilibrium decision‐making, utilities, and carbon footprint of the supply chain.