Production Capacity Reserve Strategy of Emergency Medical Supplies: Incentive Model for Nonprofit Organizations

ABSTRACT

In 2020, COVID-19 swept across the globe. To reduce the social harms caused by this public health event, nonprofit organizations (NPOs) cooperated with medical enterprises to produce reserves of emergency medical supplies. In practice, this cooperation was challenged by the different goals of NPOs and medical enterprises and the asymmetry of information between these parties. Enterprises are prone to irregularities or speculative behaviors that can result in insufficient production capacity during public health events, which increase disaster risks. Based on the principal–agent relationship of NPOs and enterprises, this study analyzed a game model between NPOs and enterprises under information asymmetry;constructed an incentive model for reserve emergency medical supply production capacity;and solved the optimal reward and punishment coefficients of NPOs, optimal effort level of enterprises, and benefits of disaster reduction. The study also verified the validity of the model using numerical examples and a sensitivity analysis. In taking up the findings of the study, this paper discusses the effects of several important exogenous variables on the optimal decision strategies of NPOs and enterprises and offers management-related insights for NPOs. © 2022 by the authors.