| We use a behaviorally motivated risk-return optimization framework to shed light on the important link between global supply chain management, investors' risk-return choice and the need for a risk free asset. By improving the transparency and sustainability of the global supply chain, firms can reduce the probability of extreme losses, thus increasing investors' expected utility and asset valuations. When monetary and fiscal policy tools have been employed beyond established precedents, and market participants begin to question the continued ability of governments to stabilize markets, firms have an opportunity to partially fill this void by reducing costly environmental and social risks in their supply chains. Increasing the availability of low asset return volatilities in an interconnected world, that faces environmental, social and financial challenges on an unprecedented scale, requires systemic change. This change appears to be already underway. |
Updated 03/19/2014