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Environmental implications of transport contract choice - capacity investment and pricing under volume and capacity contracts
Linnaeus University, School of Business and Economics, Department of Management Accounting and Logistics. Lund University.
Stockholm University.
2017 (English)In: European Journal of Operational Research, ISSN 0377-2217, E-ISSN 1872-6860, Vol. 261, no 1, 129-142 p.Article in journal (Refereed) Published
Abstract [en]

Inspired by the observation that capacity contracts are used by some retailers to increase their transport provider's investments in green transport solutions, we investigate and compare a service provider's optimal investment, and its environmental implications under a volume and a capacity contract respectively. We solve the service provider's investment problem under the assumption that the retailer uses the service to replenish a warehouse with storable goods. We then show that a capacity contract leads to more green transports, but not necessarily a larger investment in green transport solutions. At the same time, the optimal solution involves heavy investment in inventory at the retailer. The investment in inventory is non-decreasing in the cost benefit of the green transports, which may have a significant negative environmental impact. The implication is that a capacity contract will lead to better environmental performance than a volume contract only when the green transports' cost benefit is within a given interval. Whether the capacity contract is the more profitable option for the service provider within this interval depends on inventory related costs and the relative environmental costs from transportation and inventory. Interestingly, owing to this, regulation that target the price of the conventional vehicles, such as a carbon tax, may lead to both an increase or a decrease in environmental performance. (C) 2017 Elsevier B.V. All rights reserved.

Place, publisher, year, edition, pages
Elsevier, 2017. Vol. 261, no 1, 129-142 p.
Keyword [en]
Inventory, Green transports, OM and the environment, Contracting, Capacity contracts
National Category
Economics and Business Environmental Sciences
Research subject
Economy, Logistics
Identifiers
URN: urn:nbn:se:lnu:diva-64425DOI: 10.1016/j.ejor.2017.01.056ISI: 000400221000011OAI: oai:DiVA.org:lnu-64425DiVA: diva2:1099066
Available from: 2017-05-29 Created: 2017-05-29 Last updated: 2017-05-29Bibliographically approved

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Berling, Peter
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CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf