Supply chain coordination with downside risk-averse agents

Supply Chain Management is probably the most important strategic change facing any business in this age of global commerce. The rapid development and implementation of innovative technologies has aided in bringing all parts of businesses together through improved information sharing facilities across a myriad of partners. As a result, businesses can no longer afford to go about their operations locally focusing on one facility or one strategic business unit (SBU). Dynamic concerns with differing risk perspectives manage elements of a supply chain well beyond traditional siloed business research. As a result, coordination of the various disparate elements in the supply chain is paramount as a strategic initiative.;Most early work on supply contracts considers coordination of channels involving risk neutral agents. One common element in the early literature in this area involves maximization of the retailer's profit. The supplier takes no risk in such cases and all the risk is borne by the retailer. Recent literature looks at risk re-allocation mechanisms in which the supplier takes on some of the retailer's risk to maximize overall channel profit through supply contracting. It is important to note that most of this literature does not consider an explicit risk sharing mechanism, nor do the agents in the channel optimize their objectives with respect to any risk-return tradeoffs. Moreover, in practice, agents are often risk-averse or downside risk-averse. Thus, there is some ambiguity in the application of such work in reality. The contracts developed to coordinate supply chains in these cases fail to coordinate when one or more agents differ in their risk preference.;This dissertation provides an analytical framework for designing coordinating supply contracts between agents with varying downside risk preferences in a decentralized channel. We look at some common contract types and quantify the downside risk of agents in the channel, and identify conditions when each of these common contracts can or cannot coordinate the channel. We also develop contract structures that achieve coordination. The design framework is a bundle of contract structures that the agents choose depending on the specific channel characteristics and their respective risk parameters.