Weather Risk–Reward Contract for Sustainable Agri-Food Supply Chain with Loss-Averse Farmer

Hongyong Fu, Kok Loy Teo, Yujie Li and Lei Wang
Additional contact information
Hongyong Fu: China Research Institute of Enterprise Governed by Law, Southwest University of Political Science and Law, Chongqing 401120, China
Kok Loy Teo: School of Electrical Engineering, Computing and Mathematical Science, Curtin University, 6845 Perth, Australia
Yujie Li: China Research Institute of Enterprise Governed by Law, Southwest University of Political Science and Law, Chongqing 401120, China
Lei Wang: China Research Institute of Enterprise Governed by Law, Southwest University of Political Science and Law, Chongqing 401120, China

Sustainability, 2018, vol. 10, issue 12, 1-25

Abstract: Compared with the traditional agri-food supply chain (AFSC) whose only goal is to maximize economic benefits, the sustainable agri-food supply chain (SAFSC) starts to attract more attention. Typical challenges faced by SAFSC development are unfair pricing of produce, yield uncertainty caused by adverse weather, as well as conflict and cooperation between stakeholders and sustainable activities of SAFSC. In this paper, we establish a two-echelon decision-making model consisting of a loss-averse farmer and a loss-neutral company. A guaranteed price mechanism is contrived to mitigate the effects of uncertain procurement price on the farmers’ profit. It is found that this mechanism can improve the sustainable investment level but fails to reach the optimal level of the SAFSC system. Thus, a risk–reward contract taking into account the weather index (temperature) and the degree of loss aversion is designed. Results show that this contract can settle the distortion of the sustainable investment level and effectively motivate farmers to participate in the sustainable agricultural practice. Furthermore, we derive the conditions on the contract parameters under which both the company and the farmer are motivated to exert efforts to stand by sustainable agricultural practice.

Keywords: sustainable supply chain; sustainable agri-food supply chain; weather risk; loss-averse preference; risk–reward contract; coordination (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.mdpi.com/2071-1050/10/12/4540/pdf (application/pdf)
https://www.mdpi.com/2071-1050/10/12/4540/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:10:y:2018:i:12:p:4540-:d:187095

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().