The impact of risk aversion on remanufacturing supply chain decisions under quality uncertainty

Purpose - As the risk of uncertain quality of used products potentially hinders remanufacturing, this study aims to examine the impact of risk aversion under quality uncertainty of used products in a remanufacturing supply chain (RSC) consisting of a manufacturer and an independent remanufacturer. Design/methodology/approach - We develop an RSC model where the manufacturer produces new products, outsources remanufacturing to the independent remanufacturer and sells both new and remanufactured products to end consumers. Using a manufacturer-led Stackelberg game framework, we derive the equilibrium solutions under risk-neutral and risk-averse scenarios. Additionally, we design a two-part tariff contract to achieve coordination. Findings - We show that while risk aversion leads the manufacturer to raise the outsourcing fee, which in turn reduces both the remanufactured quantity and the collection rate of used products. Consequently, consumer surplus and social welfare decline, while environmental impacts rise. The proposed two-part tariff contract can improve the collection rate and social welfare. We also explore two extensions: an authorization remanufacturing scenario and a two-period scenario. We find that risk aversion has no impact on the selection of remanufacturing mode and the equilibria in the first period. Our findings provide timely managerial insights for RSC management. Originality/value - One of the main risks deterring remanufacturing is the quality uncertainty of used products. However, the risk aversion arising from this uncertainty and its effects have rarely been studied within a game- theoretic framework. This paper fills this gap by analyzing the remanufacturer's risk aversion under quality uncertainty and investigating its impacts.