This paper explores the merits of hedging stochastic input costs (i.e., reducing the risk of adverse changes in costs) in a decentralized, risk neutral supply chain. Specifically, we consider a generalized version of the well-known ‘selling-to-the-newsvendor' model in which both the up-stream...

We study hedging cash flow risks in a supply chain where firms invest internal funds to improve production efficiencies. We offer a decomposition framework to capture the cost reduction and flexibility effect of hedging. It allows us to understand how a firm's hedging choice depends on its...