Essays on supply chain management : risk management and productivity spillovers

This thesis comprises three independent essays on supply chain management. In the first essay we collect data on 27,000 vertical relationships to study the importance of different channels of productivity spillovers between upstream and downstream firms. We explore the relative influence of two types of channels: endogenous and exogenous. The endogenous channel measures how a firm's productivity is affected by knowledge transfers (arising from collaboration and peer-mentoring). The exogenous channels measure the extent to which productivity is influenced by the partners' characteristics (e.g. geographic location, inventory turnover, financial leverage, etc.). We find that the endogenous channel is the primary source of spillovers. We also find that a firm's productivity is influenced more by the operational, than by the financial characteristics of its partners. The second essay unveils a previously unexplored role of business insurance in managing supply chain risk. We show that firms may strategically buy insurance purely as a commitment mechanism to prevent excessive free-riding by other firms. Specifically, we show that contractual incentives alone leave wealth-constrained firms with low incentives to prevent operational accidents, and firms with sufficient wealth with excessive incentives. Insurance allows the latter firms to credibly commit to lower effort, thereby mitigating the incentives of the wealth-constrained firms to free-ride. The third essay explores the interplay between public policy and risk management, when governments must strike a balance between safety and industry welfare. We focus on industries where operational accidents can be destructive and, as a result, where the cost of third-party liability is significant. Firms in these industries may be discouraged from entering the market as a result of these costs. If entry is inefficiently low, a social planner can incentivize firms through ex ante subsidies, which defray the costs associated with making operations safer, or ex post subsidies, which mitigate the financial damages caused by the accident. We demonstrate that when the social planner values reliability over market competition, it is optimal to offer ex ante subsidies alone. Conversely, when competition outweighs the benefits of reliability, a combination of ex ante and ex post subsidies is optimal.Business, Sauder School ofGraduat