Emission abatement in low-carbon supply chains with government subsidy and information asymmetry

Governmental subsidy policy and channel information structure have substantial effects on supply chain emission reduction, operations and marketing decisions. In this paper, we use game theory to study the interplay of government subsidizing arrangement and information asymmetry on manufacturers' emission reduction and retailers' low-carbon promotion. Suppose realistically that the investment coefficients for manufacturers' emission reduction levels and retailer' low-carbon promotion levels are their respective private information. Among diverse governmental subsidy schemes, we find dual subsidizing are the best choice for the defined level of total subsidy under information asymmetry, while it is not always the best choice if the total subsidy level is uncertain. Under information asymmetry, the results show that manufacturer have no incentive to lie under any subsidy policy. However, the retailer has incentive to misrepresent individual information and its misreporting behaviour is related to the coefficient and allocation ratio of governmental subsidies. On this basis, we illustrate that a screening model can be deployed to reduce the negative effects of information asymmetry on supply chain operations. We therefore propose the method of improving the performance of low-carbon supply chains under various situations of information asymmetry and governmental subsidizing schemes to achieve system-wide Pareto improvement.