An inventory system with quasi-hyperbolic discounting rate

Xiaobo Zhao, Yun Zhou and Jinxing Xie

IISE Transactions, 2017, vol. 49, issue 6, 593-602

Abstract: In this article, we consider a periodic-review inventory system with stochastic demands for an infinite horizon, where the manager has a time-inconsistent preference with a quasi-hyperbolic discounting rate. We model the inventory system as an intra-personal sequential decision problem. It is shown that the ordering decision follows a base-stock policy but has a systematic bias in that the base-stock level is lower than the standard optimal level. We extend our analysis to a supply chain that is composed of a perfectly rational supplier and a quasi-hyperbolic retailer. The results show that the time-inconsistent preference of the retailer can cause considerable loss in system performance. We propose a contract with a delay-in-payment and income-sharing for such a supply chain. The results show that the contract can effectively un-bias the ordering decision of the retailer and can reach the goal of coordinating the supply chain to improve the performance.

Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1080/24725854.2017.1303763 (text/html)
Access to full text is restricted to subscribers.

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:taf:uiiexx:v:49:y:2017:i:6:p:593-602

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/uiie20

DOI: 10.1080/24725854.2017.1303763

Access Statistics for this article

IISE Transactions is currently edited by Jianjun Shi

More articles in IISE Transactions from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().