Optimal contract design in sustainable supply chain: Interactive impacts of fairness concern and overconfidence

Abstract

This article aims to study the interactive impacts of retailer's fairness concern and manufacturer's overconfidence behaviour on optimal contract design in a sustainable two-echelon supply chain. We establish one centralised contract and three decentralised contracts, namely wholesale price contract, revenue-sharing contract, and cost-sharing contract. Considering the retailer's fairness concern, we find that for the low fairness concern intensity, the revenue-sharing contract induces more profit for the entire supply chain. However, for the high fairness concern intensity, the centralised contract will be more profitable. Considering the retailer's fairness concern and the manufacturer's overconfidence behaviour simultaneously, our results show that the cost-sharing contract generates more profit for the retailer when the fairness concern intensity is high. Moreover, the supply chain system achieves the highest profit under the revenue-sharing contract among the three decentralised contracts, which is different from the case that only consider the retailer's fairness concern.

Keywords:

• Sustainable supply chain
• contract design
• fairness concern
• overconfidence
• behavioral economics
• carbon reduction effort

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 All the proofs of lemmas, corollaries, and propositions shown in this paper are given in the Supplementary appendix. Particularly, the proofs of Section 4, Section 5, and Section 6 are summarised in the Supplementary Appendix A, Appendix B, and Appendix D, respectively.

2 All the experiments in this paper are performed on a personal computer using MATLAB R2014a and run on a personal computer with 3.20 GHz and 4 GB of RAM.

Additional information

Funding

This work was supported by the Key Project of Hubei Provincial Natural Science Foundation, China (No. 2015CFA144) and the 2017 Excellent Youth Project of Hubei Provincial Department of Education (No. Q20173007).