Analysis of Supply Chain under Different Subsidy Policies of the Government

Dongxue Guo, Yi He, Yuanyuan Wu and Qingyun Xu
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Dongxue Guo: School of Management, Nanchang University, Nanchang 330031, China
Yi He: School of Management, Nanchang University, Nanchang 330031, China
Yuanyuan Wu: School of Economics and Management, Nanchang University, Nanchang 330031, China
Qingyun Xu: School of Management, Nanchang University, Nanchang 330031, China

Sustainability, 2016, vol. 8, issue 12, 1-18

Abstract: The increasing public attention on green products prompted firms and government to focus on the design and manufacturing of these products. This study focuses on a supply chain system that consists of three members, namely, supplier, manufacturer, and government, and then investigates the effects of government subsidies on social welfare and the profits of supply chain members. We utilize game and optimization theories to calculate and compare the optimal decisions and profits of players in the following scenarios: (i) the government provides a subsidy rate to the cost of manufacturer’s greenness efforts (first subsidy policy); and (ii) the government grants a per unit subsidy to the manufacturer for the demand for green product (second subsidy policy). We also derive the necessary condition for the most effective subsidy policy that maximizes expected social welfare and profits. Our analysis derives the following findings: (i) under the first subsidy policy, the government tends to provide high subsidy rate to a manufacturer with low marginal profit; (ii) under the second subsidy policy, the government tends to offer low subsidy to a manufacturer with low marginal profit; and (iii) a government’s selection of subsidy policy depends on the sensitivity of consumers to price.

Keywords: supply chain; social welfare; subsidy; green efforts; game theory (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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