This paper investigates the impacts of two environmental policies: pollution abatement subsidy and emission tax, on a three-tier supply chain, where the manufacturer distributes via multiple competitive retailers and invests in a pollution abatement technology in manufacturing. The government pursues social welfare maximization, while the manufacturer and retailers are profit driven. We find that the subsidy policy offers the manufacturer greater incentives to abate pollution and yields higher profits for channel members. However, when pollution abatement is very costly and production emission is highly damaging, the tax policy should be implemented as the subsidy policy leads to lower social welfare and environmental performance. Interestingly, we show that improving pollution abatement efficiency does not necessarily make the manufacturer better off. The manufacturer always welcomes more competition in the product market under the subsidy policy, while it is not necessarily the case under the tax policy; each retailer always fares worse with more competition. More competition enhances social welfare under the tax policy, but not necessarily under a subsidy policy. Furthermore, caution should be exercised when adopting the subsidy policy as a “hazard zone” exists where the society suffers, but it does not exist under the tax policy. Finally, we extend the base model to other scenarios such as heterogeneous retail competition, additive emission function, and combined policies.
Dr. Zhao is a Professor at the Operations and Decision Sciences in the Lazaridis School of Business and Economics, Wilfrid Laurier University. She holds a Ph.D. in the joint fields of Management Science and Transportation/Logistics from the University of British Columbia. Her research involves utilizing the tools of Management Science/Operations Research and Economics to model, analyze, and derive insights into problems in the areas of Supply Chain Management, Marketing/OM interfaces, Revenue Management, Entrepreneurships, and Sustainable Operations. Her research papers appear in prestigious refereed journals in operations such as Manufacturing & Service Operations Management, Production and Operations Management, IIE Transactions, European Journal of Operational Research, Naval Research Logistics, Decision Sciences as well as in strong marketing journals such as Quantitative Marketing and Economics. Dr. Zhao’s research has been recognized and supported by research councils in Canada such as Natural Sciences and Engineering Research Council of Canada, Social Sciences and Humanities Research Council, and Ministry of Ontario Research and Innovation Council. External and internal funds (total of $636,000) enable her to supervise many post-docs and graduate students. She is also an Adjunct Professor in the University of Waterloo, and a member of NSERC Discovery Grant Evaluation Group in the field of Civil, Industrial and Systems Engineering.
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