Information Acquisition and Voluntary Disclosure in an Export-Processing System

Long Gao

Anderson Graduate School of Management, University of California, Riverside, CA 92521

Zhaolin Li
Faculty of Economics and Business, The University of Sydney, Australia

This paper studies a supply risk management problem in the export-processing trade model, where the retailer who has a certain targeted purchasing quantity, supplies an appropriate amount of raw materials, and the supplier receives the processing fee for processing and exporting the final products. The supplier faces stochastically proportional yields. We characterize that the equilibrium has a two-threshold structure. The supplier with low and high yields may withhold the information while the supplier with medium yields may disclose depending on various parameters. Sensitivity analysis reveals that higher market potential, lower raw material costs, and lower information costs facilitate information flow, thereby improving the performance of all parties within the supply chain. When negotiating contracts, the retailer should consider not only the direct gain from lowering processing fees, but also the indirect loss from its suppressing effect on the supplier’s informational imperative. Our paper considers endogenous asymmetric supply risk information and rationalizes the supplier’s incentives for voluntarily sharing information when interacting with the retailer’s ordering decision.

Key words: export-processing, supply risk, random yield, information asymmetry, voluntary information sharing