Assessing subsidy policies for green products: operational and environmental perspectives

Abstract This paper studies the impacts of two government subsidy policies, a fixed amount subsidy and discount subsidy, on the environment and operations of a two‐echelon supply chain, where the supply chain serves the market with either a marginal cost intensive green product (MIGP) or development‐intensive green product (DIGP). We first derive the equilibrium unit greenness level, pricing decisions, and the resulting economic and aggregate environmental performances. Then, we compare the effects of the two subsidy policies for the MIGP and DIGP with and without a total subsidy budget constraint. The main results are as follows: (1) We identify the congruence regions (conflict regions) within which one subsidy policy dominates the other according to all (some) criteria. (2) With the budget constraint, the fixed amount subsidy outperforms the discount subsidy for both MIGP and DIGP in terms of the unit and aggregate greenness levels.