Risk-averse Producers Research Articles

Simulating human behavioral changes in livestock production systems during an epidemic: The case of the US beef cattle industry.

Human behavioral change around biosecurity in response to increased awareness of disease risks is a critical factor in modeling animal disease dynamics. Here, biosecurity is referred to as implementing control measures to decrease the chance of animal disease spreading. However, social dynamics are largely ignored in traditional livestock disease models. Not accounting for these dynamics may lead to substantial bias in the predicted epidemic trajectory. In this research, an agent-based model is developed by integrating the human decision-making process into epidemiological processes. We simulate human behavioral change on biosecurity practices following an increase in the regional disease incidence. We apply the model to beef cattle production systems in southwest Kansas, United States, to examine the impact of human behavior factors on a hypothetical foot-and-mouth disease outbreak. The simulation results indicate that heterogeneity of individuals regarding risk attitudes significantly affects the epidemic dynamics, and human-behavior factors need to be considered for improved epidemic forecasting. With the same initial biosecurity status, increasing the percentage of risk-averse producers in the total population using a targeted strategy can more effectively reduce the number of infected producer locations and cattle losses compared to a random strategy. In addition, the reduction in epidemic size caused by the shifting of producers’ risk attitudes towards risk-aversion is heavily dependent on the initial biosecurity level. A comprehensive investigation of the initial biosecurity status is recommended to inform risk communication strategy design.

Green Product Design and Pricing Decisions in a Risk-Averse Supply Chain under Alternative Power Structures

Motivated by the prevailing green product design and the different supply chain power structures, this paper aims to analyse the role of power relationship and risk-aversion in economic and environmental performance of sustainable supply chain. Three game theory models, including the manufacturer Stackelberg (MS) model, retailer Stackelberg (RS) model, and vertical Nash (VN) model, are developed to study the pricing and greenness level decisions in a two-echelon sustainable supply chain, where one risk-averse manufacturer sells green products through one risk-averse retailer. This paper shows that when selling through a more risk-averse retailer, the risk-averse manufacturer prefers to provide a product with a higher level of greenness and achieve a greater utility regardless of the power structure. A manufacturer as a follower may have stronger motivation to increase the product’s level of greenness than one in a more balanced supply chain when the green technology investment coefficient is sufficiently low. With regard to the power structure, the channel leadership is not necessary to for the manufacturer to achieve higher utility, which depends on the green technology investment coefficient, greenness level sensitivity, and players’ risk aversion.

Trade Credit and Revenue Sharing of Supply Chain with a Risk-Averse Retailer

In this paper, we develop three supply chain game models, i.e., the basic model, the single trade credit model, and the trade credit and revenue sharing collaboration model. Conditional value-at-risk (CVaR) criterion is used as the measure of risk assessment in these models. We analyze the optimal decisions in the centralized and decentralized situations, respectively, and verify that single trade credit cannot coordinate the supply chain. However, the collaboration contract can coordinate the supply chain. Furthermore, this paper explores the influence of risk-aversion factor, trade credit period, revenue sharing coefficient, and other parameters on the optimal decisions and studies the feasible range of Pareto improvement in the collaborative model. In numerical experiments, the results show that the decisions and profits of both the manufacturer and the retailer reply on the degree of the risk aversion, the trade credit period, and the revenue sharing coefficient. The collaborative contract effectively improves supply chain performance and achieves a ‘win-win’ situation for the supply chain members. In addition, we also consider two extensions for our research. One extension shows that the collaborative contract of trade credit and buyback can also coordinate the supply chain in a certain range. The other extension considers the optimal decision of a risk-averse manufacturer with CVaR.

Blockchain Adoption in a Supply Chain with Market Power

We model a supply chain with a single risk-averse manufacturer who purchases from vendors and sells to consumers. We find that blockchain adoption always enhances manufacturer welfare in this setting when adoption costs are zero; as a consequence, the manufacturer always adopts blockchain for sufficiently small adoption costs. The enhanced manufacturer welfare from blockchain adoption arises for two reasons: the manufacturer possessing risk aversion and the blockchain reducing information asymmetry for consumers. With regard to the first effect, blockchain enables efficient tracing of defective products so that the manufacturer can selectively recall defective products rather than conducting a full recall. This tracing ability reduces the risk involved in the manufacturer purchasing from multiple vendors and consequently leads the manufacturer to endogenously diversify across vendors. Since the manufacturer is risk averse, that diversification reduces her sensitivity to recalls; in turn, the manufacturer endogenously expands her sales volume, generating higher expected profits and higher expected utility when she adopts blockchain. With regard to the second effect, blockchain stores details from the manufacturing process, thereby ameliorating information asymmetry for consumers. This information asymmetry reduction increases consumer surplus. The manufacturer optimally responds to that increased consumer surplus by raising the consumer price when she adopts blockchain. The consumer price increase generates both higher expected profits and higher expected utility.

Licensing of a New Product Innovation with Risk Averse Agents

An outside innovator invents a new product the viability of which is uncertain. The production technology is licensed to a number (strategic choice) of risk-averse potential Cournot producers by means of: an up-front fee, a per-unit royalty, an ad valorem royalty, or a two-part tariff. The incentive to innovate is maximized with a pure up-front fee if potential producers are (or are close to) risk neutral. Otherwise, it is maximized with a combination of up-front fee and ad valorem royalty. Any scheme that contains a royalty component (per-unit or ad valorem) maximizes the innovation diffusion. Irrespective of the magnitude of licensees’ risk aversion, the innovator and consumers are better off, but licensees are worse off with schemes that have an ad valorem royalty component than with a per-unit royalty component. Consumers are best off with pure up-front fee that avoids double marginalization, even though the innovator optimally sells only one license and creates a monopoly. The results remain similar for a risk-averse innovator, but change considerably with a producing innovator.

Sourcing with recycled materials: a contingent sourcing model with supply unavailability and setup time uncertainty for ripple effect mitigation

ABSTRACT In this study, a multi-period contingent sourcing model for sustainable sourcing is developed to mitigate the ripple effect caused by supply disruption. In this model, the manufacturer's main supplier is a recycled materials supplier who is subject to random disruptions and whose materials have setup time uncertainty. His backup supplier is a virgin materials supplier who is reliable. We investigate how the manufacturer's attitude towards risk affects his absorptive-capacity decision making and his sourcing strategy, both of which have not been addressed in the related literature. Our analyses reveal that the manufacturer's decisions are strategic substitutes as cost-related parameters (except the product holding cost) vary when he is risk-neutral and can become strategic complements when he is averse to risk. Furthermore, the manufacturer can improve contingent sourcing performance by leveraging adaptive capacity through choosing the proper timing at which to switch to the backup supplier. Finally, the manufacturer's sourcing strategy is sensitive to attitude towards risk when the cost difference between virgin and recycled materials is within a specific range over which higher restorative capacity from the main supplier and lower setup time uncertainty with recycled materials are required to justify a more risk-averse manufacturer's adoption of contingent sourcing.

Bayesian Estimation and Economic Analysis of Under-Replicated Field Trials With a Linear Response Plateau Function

The linear response with plateau (LRP) is widely used in agronomic and agricultural economic studies of crop yield response. This empirical example uses data from an under-replicated experiment to compare maize (Zea maize L.) yield response to nitrogen under different plant and corridor row spacing. Not all replications received a 0-nitrogen rate, making estimation of the LRP difficult because data for the intercept terms is absent. We leverage information from other treatments using Bayesian methods to estimate the yield response of each treatment using a LRP function, given limited replication and absence of check plots for some treatments. We use a linearized LRP, which bypasses using the “min” operator typically required to estimate LRP functions. Economically optimal nitrogen rates were determined and net returns from treatments compared from the perspective of risk-averse producers. The wide plant/narrow row treatment was most profitable when the decision rule was to apply nitrogen. The statistical procedure used here may be useful for exploratory analyses of pilot agronomic trials that may include unbalanced and under-replicated treatments.

Quality competition and coordination in a VMI supply chain with two risk-averse manufacturers

<p style='text-indent:20px;'>Quality competition and risk aversion have become more and more common in today's many industries, making it a challenge to supply chain management and coordination. This paper considers a vendor-managed inventory (VMI) supply chain comprising two risk-averse manufacturers who sell their competing products through a common retailer. Market demand shared by each manufacturer is dependent on the quality level of its own product as well as on the competitor's product quality. The Conditional Value-at-Risk (CVaR) criterion is employed to formulate the risk aversion of manufacturers. This study first develops basic models without coordination mechanism and analyzes the effect of the quality sensitivity, competition intensity, risk aversion degree and cost coefficient of quality improvement on equilibrium decisions and supply chain efficiency. Further, a combined contract composed of option and cost-sharing is proposed to investigate the supply chain coordination issue. The results reveal that the combined contract can coordinate the supply chain and achieve a win-win outcome only when the manufacturers are low in risk aversion, and the system-wide profit of the supply chain can be allocated arbitrarily only by the option price. Also, this research examines the effect of the quality sensitivity, competition intensity, risk aversion degree and cost coefficient of quality improvement on the feasible region of option price.

Improving Beef Cattle Profitability by Changing Calving Season Length

We determined the impacts of calving season length on net returns and variability in net returns for spring-and fall-calving herds in Tennessee. Weaning weight as a function of calving date was estimated using a 19-year data set and simulation models generated distributions of net returns for 45-, 60-, and 90-day calving periods with and without using hypothetical improved reproductive management (IRM) practices. Shortening the calving period from 90 days increased expected net returns in the spring-and fall-calving herds. The 45-day fall-calving period with IRM maximized profits, but an extremely risk-averse producer would select a 45-day fall-calving period without IRM.

Subsidizing mass adoption of electric vehicles with a risk-averse manufacturer

This paper explores how a risk-averse electric vehicle (EV) manufacturer responds to the government’s two types of subsidy mechanism: purchase subsidy for consumers and production subsidy for the EV manufacturer. This study develops a Stackelberg framework: the government, as the leader, designs the subsidy policy to reach the EV adoption target while the risk-averse EV manufacturer, as the follower, determines the production quantity and selling price. Using an analytical model that focuses on an additive demand function, we generalize closed-form solutions and present managerial insights. Results show that the risk aversion decreases the production quantity and increases consumer surplus, however, the manufacturer’s profit does not necessarily decrease with risk aversion because the production subsidy improves profit effectively. For the government, demand uncertainty costs the government more. With regard to consumer surplus, consumers tend to benefit under the condition of demand uncertainty; however, the shortage cost hurts them. Comparing the EV manufacturer’s profit, the shortage cost and demand uncertainty decrease profit. More importantly, we assess the different effects of the two subsidies by numerical experiments. Taken the government’s subsidy expenditure and social welfare as the performance metrics, the purchase subsidy is more effective with a less risk-averse manufacturer while the production subsidy is more effective with a more risk-averse manufacturer. Therefore, this paper recommends that the government not ignore the effects of the EV manufacturer’s risk aversion and demand uncertainty when designing subsidy policies.

Coordination of Time-Varying Price Supply Chain with Risk-Averse Members under Random Order Response Time

A joint contract is proposed to coordinate the time-varying supply chain of risk-averse manufacturers and retailers. The joint contract uses price reduction subsidies and revenue-sharing strategies to enable manufacturers and retailers to share risks and achieve overall coordination of the supply chain. Firstly, a centralized and a decentralized decision-making model of the risk-averse supply chain are established. On this basis, reasons for the supply chain failure to coordinate are analyzed, and a joint contract is designed. Then, the specific form of the joint contract is given. Finally, the coordination effect of the joint contract is quantitatively analyzed through numerical analysis.

Determinants of international price volatility transmissions: the role of self-sufficiency rates in wheat-importing countries

From the 1980s until the early 2000s, many developing governments adopted market liberalization policies due to relatively low agricultural prices and the implementation of structural programs by the IMF. Yet, a paradigm shift occurred with the emergence of the 2008 food crisis, which directed food-deficit governmental bodies to protectionist regimes supporting higher food self-sufficiency. Despite the importance of food autarky to shield domestic food markets, its effects have never been fully discussed in a formalized econometric framework. This article analyses wheat price volatility transmissions from global to local markets in 10 wheat importing countries, identifying the causality with conditional correlation functions (CCF), the degree of volatility transmissions using generalized autoregressive conditional heteroskedasticity (GARCH) models with the dynamic conditional correlation (DCC) specification and potential determinants with a panel analysis. The main findings reveal that a significant unidirectional Granger causality runs from international wheat price to local retail flour prices for wheat importing countries with an approximate five-month lag, the volatility correlations from international to local markets were strengthened around the period of the 2007–08 food crisis and a higher self-sufficiency rate plays a role in alleviating volatility passthroughs from international markets. This evidence that increasing the SSR of an agricultural commodity is effective in isolating the domestic market is valuable for policymakers in food importing countries. The primary beneficiaries of implementing the policy measure are risk-averse producers and consumers because their utility or welfare improves as the price volatility of foodstuffs declines.

Financial risks in Rwandan smallholder broiler production

Purpose The purpose of this paper is to determine the stochastic net present value (NPV) of a model smallholder poultry operation in Rwanda under production and market uncertainty. Design/methodology/approach A discounted cash flow calculator was used to determine the NPV of operator investments and operating cash flows, including time, materials and capital. Broiler production data, market prices and variable input costs were collected from 125 smallholder operations in the Musanze District, Rwanda. These data were combined with a historical price index tracking the inflation rate of Rwanda’s currency. Policies including overstocking, technical support repayment scheduling, selling broilers at a spot market price, using marketing contracts and selling poultry manure were compared using non-parametric paired comparisons and stochastic dominance. Findings Risk-neutral and risk-averse producers would prefer overstocking, delaying repayment of technical support services and selling manure to status quo operational policy. No differences were observed between the option to sell birds at spot market prices or through contracts. Research limitations/implications This analysis demonstrates how individual managerial or an intervention in smallholder broiler production affects financial performance. Practical implications To mitigate risk associated with this novel enterprise, producers should consider overstocking birds. If local markets for manure were developed, the risks faced by new or beginning poultry operators could be mitigated. Originality/value A stochastic, discounted cash flow model calculator was used to determine the NPV and discounted payback period of operator investments and operating cash flows, including time, materials and capital.

Joint logistics and financial services by a 3PL firm: Effects of risk preference and demand volatility

This paper considers a third-party logistics (3PL) firm that provides integrated logistics and financial services to a budget-constrained manufacturer with different risk preferences. We adopt a mean–standard deviation objective function to reflect different risk preferences and concentrate on the effects of risk preference and demand volatility. Interestingly, we discover that substitution and complementary effects exist between the interest and freight rates of the 3PL firm. The effects of risk preference and demand volatility on the equilibrium interest rate become more significant when supply chains engage in price competition. Furthermore, we demonstrate that the 3PL firm prefers a risk-averse manufacturer.

Green Investment Strategy Selection and Behavioral Evolution of Original Agricultural Products with Risk-averse Manufacturers

Green Investment Strategy Selection and Behavioral Evolution of Original Agricultural Products with Risk-averse Manufacturers

Optimal Procurement Strategies for a Risk-Averse Buyer When Price Is Uncertain

A procurement model is built based on the expected utility theory when purchase price is uncertain. The optimal purchasing strategy for a risk-averse manufacturer is obtained. And the influence of different factors on the optimal purchasing strategy is analyzed. The results show that the relationship between the optimal purchasing quantity and the degree of risk aversion depends on the relative level of procurement cost at that time. As the price volatility or drift rate increases, the purchase amount in the early stages will increase, and the purchase amount in the later stages will decrease. Finally, it is demonstrated that the procurement strategy of a risk-neutral manufacturer is a bang-bang strategy, which is different from the procurement strategy of a risk-averse manufacturer.

Impact of risk aversion on two-echelon supply chain systems with carbon emission reduction constraints

This study examines a two-echelon supply chain consisting of two competing manufacturers and one retailer that has the channel power, in which one manufacturer is engaged in sustainable technology to curb carbon emissions under the cap-and-trade regulation while the other one operates its business as usual in a traditional manner. Two different supply chain configurations concerning risk attributes of the agents are considered, that is, (ⅰ) two risk-neutral manufacturers with one risk-averse retailer; and (ⅱ) two risk-averse manufacturers with one risk-neutral retailer. Under the mean-variance framework, we use a retailer-leader game optimization approach to study operational decisions of these two systems. Specifically, optimal operational decisions of the agents are established in closed-form expressions and the corresponding profits and carbon emissions are assessed. Numerical experiments are conducted to analyze the impact of risk aversion of the underlying supply chains. The results show that each risk-averse agent would benefit from a low scale risk aversion. Further, low carbon emissions could be attainable if risk aversion scale of the underlying manufacturer is small or moderate. In addition, the carbon emissions might increase when risk aversion of the traditional manufacturer or the retailer is of small or moderate scale.

Attitudes Toward Risk and Cost Pass-Through Under Uncertainty

This paper takes into account the difference in risk-aversion of producers to explain their degree of cost pass-through. Each producer can be either risk-neutral or risk-averse, characterized by a CARA utility function. We use our model to explain the surcharge formula in the stainless steel industry, in which American and European producers adopt 100% pass-through but Asian producers commit on zero pass-through. We find that the maximal pass-through differentiation structure arises if one supplier is risk-neutral (e.g., a Chinese state-owned enterprise) but the other is risk-averse (e.g., a domestic private enterprise). Contrarily, if both suppliers are similarly risk-averse (e.g., American vs. European producers), then the pass-through rates stay in the range of 40%-60% at market equilibrium. The presence of a risk-neutral foreign producer is an essential driver for a domestic risk-averse producer to push his pass-through rate toward an extremely high level. We also find that tariff is inefficient to promote the competitiveness of domestic producer.

Supply Chain Decision Analysis Based on Risk-Aversion and Cost Information Asymmetry

This paper analyzes the impact of risk aversion and retailer’s cost lied factor on supply chain decision-making in a hybrid channel supply chain system consisting of a risk-averse manufacturer and a retailer. According to the expected utility maximization theory, this paper gets the optimal decision of the manufacturer and retailer. First, it analyzes the impact of risk aversion factor on pricing decisions of supply chain members when the information of the retailer’s cost is public. Next, this paper considers the fact that the retailer has advantages on cost information, analyzes the relations between the retailer’s optimal cost lied factor and each parameter.

Optimal pricing in mass customization supply chains with risk-averse agents and retail competition

We analytically investigate the optimal pricing decisions in a mass customization (MC) supply chain with one risk averse manufacturer and two risk averse competing retailers. The manufacturer is the Stackelberg leader, which offers a wholesale pricing contract to the retailers. After receiving the wholesale price, each retailer decides the retail selling price for the MC product simultaneously. We first prove the existence of a unique pricing equilibrium and then derive the optimal prices. After that, we focus our attention on exploring how the degree of risk aversion of each supply chain agent affects the optimal prices as well as consumer welfare, supply chain profitability, and credit deposit under a competitive setting. We find that a more risk averse manufacturer will offer a lower wholesale price, which leads to lower retail selling prices offered to the market. For the retailers, if a retailer is more risk averse, it will make the manufacturer offer a higher wholesale price and it will set a lower retail selling price; however, whether the competing retailer will increase or decrease the retail selling price depends on the level of competition. We examine the impacts brought by the market demand uncertainties as well as the respective demand correlation. We conclude by revealing that in the sufficiently competitive market environment, consumers enjoying MC services are benefited more but the supply chain profitability may decrease more (depending on how risk averse the agents are) when (i) the manufacturer and retailers are more risk averse, (ii) demand uncertainties and the correlation between market demands are higher. We also find that the retailers need to pay more credit deposit if the manufacturer is more risk averse or the demand correlation is higher. Finally, we consider the MC product improvement scheme in the extended model and reveal that it is a Pareto improving optimal measure if the supply chain agents are not too risk averse and the increment in production cost is sufficiently small.