Contract designs for energy-saving product development in a monopoly

Wenhui Zhou and Weixiang Huang

European Journal of Operational Research, 2016, vol. 250, issue 3, 902-913

Abstract: We discuss two types of contracts for energy-saving products in a monopoly with the government’s budget constraint. These contracts specify the subsidy, either a fixed amount (referred to as F-type contracts) or a discount (referred to as D-type contracts), and the threshold of the energy consumption level of products, below which the products are labeled as certified products and qualified for the subsidy. We model a three-stage game and give optimal design of the contracts under two different objectives of the government: minimizing the total energy consumption and minimizing the average energy consumption. Our results show that: 1) The optimal contract designs are the same under the two objectives; 2) If the subsidy budget is relatively low, the F-type contract is more preferable than the D-type contract, and vice versa; 3) The contracts’ function of certification enables the government to take the advantage of the consumer environmental awareness to improve the environmental performance even when the government’s subsidy budget is zero; 4) Both contracts benefit the environment. Under the F-type contract, only the government pays for the environmental improvement. In contrast, under the D-type contract, both the government and consumers pay.

Keywords: Sustainable operations management; Contract designs; Subsidy; Product design and pricing; Environmental performance (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377221715009509
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:250:y:2016:i:3:p:902-913

DOI: 10.1016/j.ejor.2015.10.024

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().