Risk Pooling in Commercial Returns by Managing Product Return Period

Posted: 30 Oct 2013 Last revised: 11 Apr 2017

See all articles by Muhammad Naiman Jalil

Muhammad Naiman Jalil

United Arab Emirates University (UAEU)

Sadeeqa Shahzad

Lahore University of Management Sciences

Date Written: October 28, 2013

Abstract

Retail companies can employ a variety of return policies ranging from a no-questions-asked return policy to specifying a duration in which products can be returned. This duration is often termed as return period. The impact of return period length on product return volumes and their variability is not understood. This paper shows that increasing return period length results in reducing variability of product returns-- commonly known as risk pooling. Risk pooling in product returns by increasing return period length is structurally different from existing works on risk pooling. Commonly discussed risk pooling examples such as demand substitution, are accrual in nature where the behavior of underlying stochastic system does not alter. In the case of product returns, risk pooling occurs by changing customer behavior, which is a behavioral change in the underlying stochastic system. Additionally, the necessary conditions for behavioral change to result in additional risk pooling benefits are derived.

Keywords: Product Return Period, Product Return Forecasting, Uncertainty in Product Returns, Risk Pooling in Product Returns, Product Return Behaviour, Risk Pooling, Closed Loop Supply Chains

JEL Classification: M31, M11, M00, L81, C44

Suggested Citation

Jalil, Muhammad Naiman and Shahzad, Sadeeqa, Risk Pooling in Commercial Returns by Managing Product Return Period (October 28, 2013). Available at SSRN: https://ssrn.com/abstract=2345622 or http://dx.doi.org/10.2139/ssrn.2345622

Muhammad Naiman Jalil (Contact Author)

United Arab Emirates University (UAEU) ( email )

PO Box 15551, United Arab Emirates Univ.
Al Ain, Abu Dhabi 00000
United Arab Emirates

Sadeeqa Shahzad

Lahore University of Management Sciences ( email )

D.H.A, Lahore Cantt
Lahore, Punjab 54792
Pakistan

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