Environmental governance strategies in a two-echelon supply chain with tax and subsidy interactions

Yongjian Li (), Qianzhou Deng, Chi Zhou and Lipan Feng
Additional contact information
Yongjian Li: Nankai University
Qianzhou Deng: Nankai University
Chi Zhou: Tianjin University of Technology
Lipan Feng: Nankai University

Annals of Operations Research, 2020, vol. 290, issue 1, No 22, 439-462

Abstract: Abstract Environmental impact is one of the major causes of tax and subsidy interactions between the government and firms. The government sets the tax of the upstream impact and designs the subsidy threshold value to promote the green effort of firms. This paper presents the optimal decision of the supply chain and the effective environmental governance strategy of the government. A Stackelberg game between the government and a two-echelon supply chain is constructed, where a supplier makes core parts for a manufacturer. First, we compared the effects of subsidy on the pricing decisions of firms and identified the profitable condition of the green effort of manufacturers. Results corroborate that a negotiated space for suppliers and manufacturers exists to reduce the environmental impact from the source, especially when the tax legislation is strict. Second, we obtained the optimal upstream contract of environmental impact in supply chains, which appears a phenomenon of the Matthew effect under any type of governance strategies. This finding affirms that subsidies make supply chains inclined to choose a greener upstream decision. The condition when subsidies make sense by effective environment improvement in the supply phase was further derived. Finally, with tax and subsidy governance strategies, the multi-perspective social welfare was simulated and analyzed. Accordingly, we verified that the growth boundary of the supply-chain profit with high subsidy threshold is better than that of the social welfare or the environment performance. It implies that setting the green subsidy standard originally high is a comprehensively sustainable choice for social welfare. In addition, the simulations of three tax structures were analyzed in extensions.

Keywords: Environmental impact; Governance strategy; Tax and subsidy; Stackelberg game; Supply chain management (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://link.springer.com/10.1007/s10479-018-2975-z Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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:spr:annopr:v:290:y:2020:i:1:d:10.1007_s10479-018-2975-z

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10479

DOI: 10.1007/s10479-018-2975-z

Access Statistics for this article

Annals of Operations Research is currently edited by Endre Boros

More articles in Annals of Operations Research from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().