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Channel Contract Behavior: The Role of Risk Attitudes, Risk Perceptions, and Channel Members' Market Structures

Pennings, Joost M.E. and Brian Wansink (2004). Channel Contract Behavior: The Role of Risk Attitudes, Risk Perceptions, and Channel Member Market Structures. Journal of Business, 77(4), 697–723. 

Risk and uncertainty influence many channel decisions. Managing or reducing such risks implies managing cash flows and thus the integration of principles of marketing and finance. Previous research has investigated risk management by focusing on either risk aversion or risk attitudes but not both.

By modeling risk behavior as the interaction between risk attitude and risk perception (IRAP) in this study the authors investigate the influence of both of these factors simultaneously.

Analysis of the joint channel decisions of 208 producers, wholesalers, and processors resulted in three key results: 1) risk attitudes significantly vary across different levels of channel members 2) IRAP in combination with the channel member's market structure is a strong predictor of contract behavior 3) Increases in channel power strengthen the influence of IRAP on cannel contract behavior. As a consequence, understanding the IRAP profile and market structure of other members within the channel is crucial in gaining insight into the behavioral pattern of channel members.

Download a pre-print version of this article here.

*The study was conducted at the University of Illinois, former location of the Cornell Food and Brand Lab.