SIMULATION OF FINANCING DECISIONS WITH BEHAVIOURAL PREFERENCES AND YIELD UNCERTAINTY

Abstract

We consider a two-level supply chain comprising a retailer and capital-constrained farmer, with three cases of behavioural preferences: stockout aversion (SA), waste aversion (WA), and stockout and waste aversion (SW); the farmer can solve financial constraints through bank loans and internal financing. We analyse the financing decision simulation of the farmer in a yield uncertain environment. The results show that – regardless of the preferences of the farmer – the largest expected utility and production input of the farmer and the expected profit and order quantity of the retailer are those under internal financing, followed by bank loans and non-financing. Finally, we analyse the influence of the farmer's SA and WA on the expected utility (profit) and decision-making of supply chain members by numerical simulation. Most supply chain studies do not factor in the high risk faced by farmers. Our study provides data on various option outcomes for those advising farmers facing difficult financing decisions. (Received in June 2022, accepted in July 2022. This paper was with the authors 2 weeks for 1 revision.).