The effect of an uncertain commission rate on the decisions of a capital-constrained developer

Tal Avinadav and Priel Levy

Operations Research Perspectives, 2023, vol. 11, issue C

Abstract: This study investigates a green supply chain consisting of a capital-constrained developer who sells a product via a platform. The parties interact via an agency contract, in which the platform charges a fixed proportion of the revenue gained from each sold unit and the developer receives the remaining sum. Since the development process is relatively protracted, at the early stages of this process, the commission rate to be charged by the platform is random from the developer’s perspective. Upon receiving information about the amount of capital the developer has committed to investing in greenness from his own resources, an external investor offers the developer a loan at a certain interest rate (to further enhance the developer’s investment in greenness), based on which the developer sets the product’s greenness level and selling price. The study provides a game-theoretic analysis of this model and compares its equilibrium solution with the optimal solution of a fully self-financing developer. The innovative feature of the study lies in its comparison between the case of a developer who might not be able to repay the loan, because his revenue from selling the product might be lower than the amount he is required to repay the investor (the loan plus interest), and the case in which it is certain that the developer will be able to repay any debt to the investor. Our study shows that, in the case where the investor takes on the financing risk, the customers benefit from a higher greenness level (albeit at a higher price), resulting in greater demand for the product.

Keywords: Capital-constrained developer; Agency contract; Random commission rate; Carbon emission reduction; Investor credit (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:oprepe:v:11:y:2023:i:c:s2214716023000234

DOI: 10.1016/j.orp.2023.100288

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