A Capacity Option Contract in Government Emergency Supplies Reserving

The paper designed a capacity option contract for government emergency supplies reserving, in which there is only one purchaser (government) with only one supplier. Initially, the government purchases a certain amount of real emergency supplies as real reserves and a certain amount of production capacity which could be immediately into real emergency supplies once emergency supplies demand occurs. Such procurement mechanism could reduce government's real reserves a lot while government's shortage risk of emergency supplies could be reduced. The procurement mechanism also compensates the supplier's cost caused by assault production after disaster reasonably. The supply chain realizes coordination and both the government and the supplier realize a win-win situation.