Spillover effects of government subsidies on agricultural supply chains under risk-sharing mechanisms

Abstract

This paper focuses on the agricultural supply chain and proposes a new financing model of risk sharing: the collateralized loan. In order to examine the operational effectiveness of the risk-sharing mechanism, we consider the effects of government subsidies and risk aversion factors. In the collateralized loan, the purchaser serves as the leader to provide loans to the farmer when the farmer provides collateral. The simulation results demonstrate that government subsidies can bring significant spillover effects to the whole supply chain. The effect’s extent increases as the subsidy increases. And the spillover effect is more obvious under the collateralized loan than bank financing. The discount factor also generates a spillover effect for the agricultural supply chain through the inversion mechanism. The lower the discount factor, the more obvious the spillover effect. The increase in government subsidies facilitates the operation of risk-sharing mechanisms, while the increase in risk aversion hinders the operation of the mechanisms. This paper provides new insights into the issue of agricultural finance and managerial implication to precisely assist farmers in greater need.