Harish Krishnan

This thesis comprises three independent essays on supply chain and project management. In the first essay, we study the role of a risk-sharing contract in managing a buyer’s reputation risk when sourcing from a potentially unethical supplier. We show that by sharing some of the supplier’s operational loss, the buyer may (in some conditions) decrease its reputational risk but this has to be balanced against an increase in the operational risk. Risk-sharing also reduces sourcing costs because the buyer takes on some of the worst-case loss of a wealth-constrained supplier. These results suggest that risk-sharing can be superior, as a procurement strategy, to conventional approaches like dual sourcing or penalty contracts. In the second essay, we examine the role of network disruptions in causing project delays. A project belongs to a large interconnected network of clients, contractors, and subcontractors—who manage multiple projects concurrently. Accordingly, a disruption in one project forces all parties to reallocate resources from other concurrent projects, causing externalities across the wider network. We use data from tens of thousands of U.S. public projects—and their networks—to quantify the importance of these network externalities. We show that a given project is delayed by 5-10%, on average, in the three-months following a disruption at concurrent projects of its client or subcontractor. This impact is greater when projects are nearing completion, have a low contract value, are non-competitively awarded, or do not include performance incentives. In the third essay, we study the impact of payment timings on project delays. We develop theories that explain how payment duration affects project completion, and generate testable hypotheses. We empirically test these hypotheses using data on U.S. public projects. Our identification strategy uses a policy amendment that expedited payments to certain federal contractors as an exogenous shock. We find that projects whose payments were expedited had significantly higher delays after the reform. We show that this effect is driven, in part, by the contractors’ financial constraints and the increased competition for the treated projects after the policy.

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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.

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This dissertation studies three topics in supply chain management. Consider a decentralized supply chain, where a manufacturer distributes products through competing retailers. Incentive conflicts among players often occur in such supply chains since the players have different objectives. This research seeks to help the manufacturer understand downstream retailers' incentives and provide managerial guidelines such as coordinating mechanisms and optimal strategies under existing contractual agreements.The first essay considers a manufacturer who distributes a product line (consisting of different product variants) through competing retailers. Due to the substitution between different product variants, as well as between different retailers, the incentive problems associated with distributing a product line are more complicated than that of distributing a single product. We characterize retailers' incentive distortions, and construct contracts that achieve channel coordination. Using numerical simulations, we study how the retailers' incentives and contracts are affected by underlying model parameters.The second essay investigates firms' incentives for transshipment in a decentralized supply chain. Transshipment price and the control of transshipment parameters are key factors that affect the manufacturer's and retailers' incentives for transshipment. We identify conditions under which the manufacturer and retailers are better off and worse off under transshipment. We also compare the decentralized retailer supply chain with one where the retailers are under joint ownership (a "chain store"). We obtain two surprising results. First, the manufacturer may prefer dealing with the chain store rather than with decentralized retailers. Second, chain store retailers may earn lower profits than decentralized retailers.The third essay examines the impact of a gray market on the firms in a decentralized supply chain. Under certain conditions, a gray market's positive effect, i.e., the demand generating effect, dominates the negative effect, i.e., the demand loss in authorized channels, and increases the manufacturer's profit. However, the manufacturer also can be hurt by a gray market. In some cases, the manufacturer can use the linear wholesale price to deter retailers from transshipping to a gray market. However, the deterrence may not always be successful, and the manufacturer needs to employ other approaches such as penalty terms to terminate a gray market.

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