Effects of emission reduction and partial demand information on operational decisions of a newsvendor problem

Abstract

Abstract This paper analyzes a newsvendor problem with partial demand information under two kinds of carbon emission regulations, in which only the mean and variance of the demand distribution are known. Under the carbon cap and cap-and-trade regulations, two distributionally robust models are formulated to determine the optimal order quantities to maximize the worst-case expected profits. We derive the closed-form expression of the optimal order quantity and show that the cap-and-trade regulation can lead to higher profit and lower carbon emissions. Numerical examples are provided to illustrate the theoretical results and develop the robustness of system parameters via the robust parameter design technique. The results indicate that compared with carbon emission parameters, the demand information parameters have more effect on the optimal worst-case expected profit and less effect on carbon emissions under carbon cap regulation. And the demand information parameters except for the variance of demand have more effect on both the optimal worst-case expected profit and carbon emissions under cap-and-trade regulation.