Decision-making and coordination in the contract-farming supply chain with fairness concern and output uncertainty

Supply chain members’ fairness concern, which may be disadvantageous or advantageous inequity averse, is a key factor affecting their cooperation and operation efficiency. Unfair distribution of profits will harm the efficiency of supply chain. In this paper, we consider a contract-farming supply chain consisting of an enterprise and a farmer with fairness concerns and uncertain output, where the enterprise is the leader and the farmer is the follower. We construct three Stackelberg game models: benchmark case without fairness concern, one with the enterprise’s inequity aversion and the other with both parties’. We study the impact of fairness concerns on the optimal decisions of supply chain members. The results show that: (1) When the farmer is neutral or faces disadvantageous inequity, the enterprise’s profit and expected utility are always smaller than that of the benchmark case, while the farmer is likely to benefit. (2) In contrast to previous studies, we find that an increase in wholesale price will lead to lower production input when both parties face disadvantageous inequity. (3) When both parties face advantageous inequity, it can achieve a win-win cooperation if the output uncertainty is high and the degree of the farmer’s advantageous inequity is low.