A tripartite sequential game for relief prepositioning with framework agreements and catastrophe insurance

Abstract

Stockpiling relief supplies in central warehouses is a good alternative for relief organisations tasked with responding to complex and sudden disasters. These stockpiles, however, can become huge economic burdens with the potential for waste. Cooperation between relief organisations and businesses, such as suppliers and insurance companies, may help to share risk and manage the uncertainty of relief response. This paper establishes cooperation mechanisms for relief organisations through a framework agreement with a supplier and a catastrophe insurance contract with an insurance company. A tripartite sequential game model (SGM) is established involving the relief organisation, the supplier, and the insurance company. We consider two contexts: one where the relief organisation has no budget constraint, and one where it does. With this cooperation mechanism, the relief organisation minimises the social costs of relief prepositioning, including its own storage, framework agreement, and insurance costs, while the supplier and insurance company maximise their profits. We explore the practicalities of cooperation mechanisms involving three parties and compare these with two-party cooperation agreements using a benchmark model (BM) through a case study in Shenzhen, China. Results show that the designed three-party cooperation mechanism can achieve a win-win-win situation for all parties from a long-term and sustainable perspective. This research contributes to the establishment of a tripartite game mechanism in which the relief organisation cooperates with the supplier and the insurance company.