Volume 55, Number 2, March-April 2021
|Page(s)||521 - 544|
|Published online||31 March 2021|
Optimal strategies for a capital constrained contract-farming supply chain with yield insurance
College of Economics and Management, Nanjing Forestry University, Nanjing 210037, P.R. China
2 Department of Mathematics, North Carolina State University, Raleigh, NC 27695-8205, USA
* Corresponding author: firstname.lastname@example.org
Accepted: 15 January 2021
We consider a capital-constrained contract-farming supply chain with a risk-averse farmer and a risk-neutral agro-dealer, where the farmer faces some yield uncertainty that can be covered by insurance. Using the Stackelberg model, we derive the optimal strategies on the insured level, production and wholesale price. The result shows that farmers with low risk aversion tend not to be insured, while those with high risk aversion tend to insure. Further analysis indicates that, as the degree of the farmer’s risk aversion increases, the farm size decreases, but the yield per unit area and the wholesale price of the agricultural product increases. In addition, yield insurance and premium subsidies can lead to a decrease of the yield per unit area. However, the expansion of the farm size can compensate for the inhibitory effect of the decrease of yield per unit area on the total yield, and thus the total yield increases. We also find that when the premium subsidy rate is low, the yield insurance’s value to farmers is negative. Moreover, the yield insurance’s value to farmers increases with respect to the bank’s interest rate.
Mathematics Subject Classification: 90B10 / 91A80
Key words: Contract-farming / yield uncertainty / yield insurance / capital constraint / risk-averse
© EDP Sciences, ROADEF, SMAI 2021
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