Equilibrium Analysis of Power Structure and Farmer Risk Aversion in Green Technology Outsourcing for Agricultural Supply Chains

Abstract

Smallholder farmers often lack the capacity to adopt green technologies, and their risk aversion further limits green production. Outsourcing green technology to specialized service providers is a promising solution, but it remains unclear how power structure affects farmers’ adoption of such outsourcing, how supply chain members rank different power structures, and whether outsourcing always improves social welfare. To address these questions, this paper develops an equilibrium model of an agricultural supply chain consisting of a risk-averse farmer, a retailer, and a green technology service provider. The farmer may either continue traditional production or outsource green technology. Farmer risk aversion is captured by conditional value-at-risk (CVaR). We derive equilibrium decisions under three power structures: service-provider-led, retailer-led, and vertical Nash. We characterize the adoption threshold for green technology outsourcing, compare equilibrium planting acreage, green technology input, prices, and member payoffs, and evaluate social welfare. The results show that outsourcing becomes preferable when farmers are less risk averse, and the outsourcing threshold is lowest under service provider leadership. The farmer prefers vertical Nash when consumers’ green preference is low and service-provider leadership when it is high. Service providers benefit from leadership, while retailers do not always do so. Social welfare can improve under service-provider-led outsourcing but may decrease under retailer-led and vertical Nash regimes. An extension with exogenous service pricing is also analyzed. These findings provide equilibrium-based implications for sustainable agricultural outsourcing policy.