2363. Legitimacy of buyers' supply chain transparency disclosure under limited supplier visibility and state-imposed constraints?
Invited abstract in session MB-42: Game theory for the circular economy, stream Circular & Sustainable Supply Chains.
Monday, 10:30-12:00Room: Newlyn GR.02
Authors (first author is the speaker)
| 1. | Karthik Ramaswamy
|
| Production and Operations Management, Indian Institute of Management Bangalore | |
| 2. | Rajeev Ranjan Tripathi
|
| Production and Operations Management, Indian Institute of Management Bangalore |
Abstract
Global companies outsource production to developing economies for lower costs and cheap labor, but this often leads to social issues like child and forced labor. In response, developed nations have enforced laws requiring companies to ensure their supply chains free of such practices. To comply, firms disclose their suppliers' details and rate them based on their social responsibility (SR) practices. However, these ratings are often unreliable due to buyers' limited visibility into their suppliers' operations due to various constraints. One such constraint is when governments in developing countries restrict supplier audits.
We identify conditions under which buyer’s disclosures regarding their supplier’s SR practices are legitimate by considering two types of risk-sharing contracts between buyer and supplier (wholesale price contract and buyback contract) and state-imposed visibility constraints. We model the strategic interaction between the buyer and the supplier (rated low or high in SR practices) as a signaling game, where the supplier signals transparency or non-transparency, and the buyer updates his belief accordingly.
Our analysis reveals that, regardless of the contract type,
1. Without state-imposed constraints and minimal supplier monitoring, low-SR suppliers opt for non-transparency, while high-SR suppliers opt transparency.
2. When state-imposed constraints are high, all suppliers choose transparency regardless of their SR type or external monitoring
Keywords
- Game Theory
- OR in Sustainability
- Supply Chain Management
Status: accepted
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