The coordination mechanism of a risk-averse green supply chain

Abstract

PurposeThis study aims to establish a centralized decision-making game model and manufacturer-led Stackelberg game model based on factors of risk aversion of supply chain members and product greenness. The research aims to study whether the introduction of the “cost + risk sharing” contract affects coordination of this type of green supply by calculating the optimal decision of each mode.Design/methodology/approachThis research designs a supply chain model under centralized and decentralized decision-making. This model uses the Stackelberg game to calculate the optimal decision under decentralized decision-making to evaluate the effect of a green supply chain and then analyze the “cost + risk sharing” contract and the degree of coordination of the supply chain. A sensitivity analysis is conducted on the centralized mode for the impact of variables on the supply chain.FindingsThis research finds a double marginalization effect in decentralized decision-making, and the risk aversion coefficient plays a decisive role in the utility of supply chain members. The specific range of risk- and cost-sharing factors allows supply chain members to achieve Pareto improvements and provides decision-making based on the corresponding management strategies according to each other’s risk preference degree.Research limitations/implicationsThe influence of each variable on the green supply chain in the centralized mode is studied by MATLAB numerical simulation. It provides reference for green supply chain members to formulate corresponding management strategies according to each other's risk preference degree.Originality/valueThis research innovatively considers manufacturers and retailers to explore the market demand for product greenness. It introduces a novel “cost + risk sharing” contract to coordinate the green supply chain.