A decentralized supply chain is one in which each entity in the supply chain – manufacturer, retailer, intermediary, is free to make its own operational decisions. However, these decisions do not necessarily all have to be in the best interests of the entire supply chain, but rather are usually made with the best interest of only the single entity in mind.a) Recent literature on supply chain coordination with contractsOptimal supply chain performance requires the execution of a precise set of actions which are not always in the interest of the individual members of the supply chain, who more often than not are only interested in optimizing their own objectives (Cachon et al. (2003) ). Optimal supply chain performance can be achieved if companies coordinate by contracting a series of transfer payments designed to align each company's goal with the supply chain goal. This mechanism is called decentralized supply chain coordination using contracts. Below, we review some of the important contracts found in recent supply chain literature, the significant assumptions made when deriving the different contract types, and the practical use and limitations of each contract type. Through this section, we aim to develop an essential vocabulary of the state of the art in supply chain contracts and use this knowledge to develop optimal contracting and coordination structures for the problems of this thesis. (Cachon et al. (2003)). Wholesale price contract: With a wholesale price contract, the supplier charges the retailer a fixed price w per unit of product purchased. Lariviere and Porteus (2001) analyze a wholesale price contract in the context of the news-vendor model. They consider that a producer who produces a single good at an average paper price ... evaluates the probability of achieving a certain goal. They obtain contracts based on the Pareto optimality criterion, which is again different from the Nash equilibrium criterion usually used to derive optimal contract parameters. The authors define a Pareto contract definition as: “Within a contractual form, a contract is said to be Pareto if its set of parameters is Pareto, i.e. there is no alternative set of parameters such that no agent is worse off and at least one officer is much better." They also note that Pareto contracts do not coordinate a supply chain, because there is one agent who is always strictly better than the other agents, and for a contract to coordinate a supply chain, it is necessary that the agents' optimal actions under the contract lead to Pareto optimality for the supply chain as a whole, and not for each individual agent.