Closing a Supplier’s Energy Efficiency Gap Through Assessment Assistance and Procurement Commitment

Jason Nguyen (), Karen Donohue () and Mili Mehrotra ()
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Jason Nguyen: UNSW Business School, University of New South Wales, Sydney, NSW 2052, Australia
Karen Donohue: Carlson School of Management, University of Minnesota, Minneapolis, Minnesota 55455
Mili Mehrotra: Carlson School of Management, University of Minnesota, Minneapolis, Minnesota 55455

Management Science, 2019, vol. 65, issue 1, 122-138

Abstract: This paper analyzes the energy efficiency (EE) investment decisions of a capital-constrained manufacturer that competes with an alternative supplier for the business of a large industrial buyer. Through a series of game-theoretic models, we characterize when it is beneficial for the buyer to offer EE instruments, including assessment assistance and procurement commitment, and how these instruments interact with third-party assessment assistance to affect the supplier’s EE investment level. We find that assessment assistance helps reduce the EE gap but procurement commitment is required to eliminate it. We also find that the availability of third-party assessment assistance reduces the buyer’s incentive to offer both of its instruments, a scenario that potentially lowers the supplier’s EE investment level. Our findings provide insights for buyers and policy makers interested in improving supply-chain EE.

Keywords: energy efficiency; energy efficiency assessment; energy audit; supply chain sustainability; supplier development; buyer–supplier interactions (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:65:y:2019:i:1:p:122-138

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