What Drives Green Innovation? A Game Theoretic Analysis of Government Subsidy and Cooperation Contract

Weimin Ma, Ranran Zhang and Shiwei Chai
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Weimin Ma: School of Economics and Management, Tongji University, Shanghai 200092, China
Ranran Zhang: School of Economics and Management, Tongji University, Shanghai 200092, China
Shiwei Chai: School of Economics and Management, Tongji University, Shanghai 200092, China

Sustainability, 2019, vol. 11, issue 20, 1-24

Abstract: Green innovation, implemented by enterprises, contributes to sustainable development and environmental protection. However, because of the high cost and high risk of green innovation, enterprises are reluctant to step into green innovation activities in practice. Government subsidies are conducive to promoting green innovation in enterprises. To investigate firms’ preferences for green innovation, we consider a three-player game in a supply chain where a government offers subsidies (price, innovation, or both subsidies) to a manufacturer and a retailer, while the latter two players cooperate with each other through contracts (revenue-sharing and cost-sharing contracts). By exploring the impacts of government subsidies and cooperative contracts on the optimal level of green innovation efforts and profits of participants, we find that: (1) for green innovation that leads to increased production costs, the government should subsidize both the retailer and the manufacturer to improve the level of green innovation; (2) the revenue-sharing contract is more effective than the cost-sharing contract under the premise of government subsidies; and (3) the revenue-sharing ratio decreases in production and innovation costs, while the cost-sharing ratio increases in these two costs.

Keywords: cost-sharing contract; game theory; government subsidy; green innovation effort; revenue-sharing contract (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

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