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

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.

Automated summary

The study reveals that the retailer's fairness concern significantly influences the optimal contract design and supply chain profit. Under low fairness concern intensity, revenue-sharing contract is more beneficial for the entire supply chain, while under high fairness concern intensity, the centralised contract is more profitable.