The Interplay of Green Subsidy Policies and Supply Chain Treatment Decisions

The independent research and development of emission-reducing technologies by a manufacturer in a green supply chain is frequently incentivized through green subsidies based on either the total technology investment cost or the degree of greenness in each produced unit. There are two types of emission-reducing technologies: cleaner process and end-of-pipe treatment. This paper investigates which technology would be the most profitable option for a manufacturer under one of the two subsidy policies, and which subsidy would be the optimal choice for the government to facilitate emission reduction after the adoption of a particular green technology. Four Stackelberg game models are constructed and analyzed in a green supply chain composed of one manufacturer and one retailer. Subsequently, numerical simulation is performed for further exploration. The results illustrate that the manufacturer should prefer the cleaner process as the optimal choice under either subsidy policy, and that subsidy for the greenness degree per product would be more effective for emission reduction than those for the overall R&D cost of a green technology after the implementation of either technology. The results may provide strategic references for decision-making of the government and manufacturers.