Tuesday, January 10, 2012


Designing Efficient Resource Procurement and Allocation Mechanisms in Humanitarian Logistics
INSEAD Working Paper 2012/04/TOM/ISIC

We analyze the efficacy of different resource procurement and allocation mechanisms in the design of humanitarian logistics-based supply chains. As a part of their preparedness effort, aid programs often make decisions on resource procurement and allocation ex-ante because doing so allows for rapid response if an adverse event occurs. However, such programs typically operate under funding constraints and donor earmarks, which makes the design of efficient resource procurement and allocation systems a challenging problem. We formulate this problem in an agency setting with two independent aid programs, where different resource procurement and allocation mechanisms are considered and where investments in resources are of two types: a primary resource that is needed for providing the aid, and infrastructural investments that improve the operation of the aid program in using the primary resource. We show that allowing aid programs the flexibility of transferring primary resources improves the e ciency of the system by yielding greater social welfare than when this flexibility does not exist. More importantly, we show that a central procurer can further improve system efficiency by providing a mechanism that facilitates the transfer of primary resources and eliminates losses from gaming. This outcome is achieved without depriving the individual aid programs of their decision-making autonomy while maintaining the constraints under which they operate. We find that outcomes with a centralized procurement system but decentralized infrastructural investments by the aid programs are the same as with a completely centralized system (where both procurement and infrastructural investments are centralized).