Carbon emission reduction investment in sustainable supply chains under cap-and-trade regulation: An evolutionary game-theoretical perspective

Carbon emission reduction has become increasingly important for limiting global warming throughout the world. Cap-and-trade regulation as an effective market-based mechanism is adopted to motivate firms to invest in decarbonization technologies toward sustainable supply chains. In practice, sustainable supply chains operate in the long term and decarbonization investment decisions could evolve as time passes. Distinguished from previous research, this paper formulates an evolutionary game model to study the investment decisions of suppliers and manufacturers under cap-and-trade regulation. We first analyze the strategic stability of suppliers and manufacturers and subsequently discuss the evolutionary stable strategies (ESSs) of the game with related conditions. The free-rider problem might occur in the investment game, and discourages one who would have invested from making efforts into carbon emission reduction. As a result, we explore the impact of key parameters on the ESSs for reducing free-riding behaviors. Numerical studies are conducted to simulate the evolution and stability of the game. The results show that revenue-related coefficients have a great impact on free-riding behaviors and cap-and-trade-related parameters affect their willingness to invest in carbon emission reduction. Based on findings and observations, some useful managerial implications are provided for regulators to make policies.