Voluntary Environmental Effort Under (s, S) Inventory Policy

Alain Bensoussan and Fouad Ouardighi ()
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Alain Bensoussan: International Center for Decision and Risk Analysis, Jindal School of Management, University of Texas at Dallas
Fouad Ouardighi: ESSEC Business School

Chapter Chapter 7 in Essays on Pollution Control in Economics and Management Science, 2025, pp 211-235 from Springer

Abstract: Abstract Prior research on inventory control has been wide-ranging, yet the environmental implications of an (s, S) inventory policy remain uninvestigated. This paper seeks to bridge the gap by characterizing a firm’s voluntary environmental policy in the setup of an (s, S) inventory control policy. We suggest a mixed model structure wherein, due to the presence of fixed production costs, the inventory is determined continuously by sales and impulsively with ordering decisions obeying an optimal stopping process, while the uncertain sales process is controlled by continuous-time environmental goodwill-related decisions. We show that a firm should successively use voluntary environmental efforts to stimulate its sales when there is inventory and to increase backlogging to improve its production efficiency. Given the recurrent pattern of this policy, we conclude that voluntary environmental efforts under an (s, S) inventory control is not compatible with using these efforts to generate ephemeral reputation insurance.

Keywords: Inventory control; Environmental protection management; Stochastic demand; Voluntary programs (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:lnopch:978-3-031-78227-5_7

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DOI: 10.1007/978-3-031-78227-5_7

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