Effects of sustainability investment and risk aversion on a two-stage supply chain coordination under a carbon tax policy

Abstract

While carbon tax policies are widely implemented to reduce emissions, they also increase costs, which has caused controversy in recent years. This new issue motivates us to consider whether a manufacturer should invest in sustainable technology and to study the effects of risk aversion on coordinating a two-stage supply chain comprising of a single manufacturer and a single retailer under a carbon tax policy, which has not been fully investigated in the existing literature. In the mean-variance framework, two optimization models for manufacturer-led decentralized systems with and without technology investment are first developed and then compared to show that the economic and environmental performance of the supply chain can be improved by investing in sustainable technology. An optimization model for a centralized supply chain with technology investment is then solved to derive several coordination conditions. A revenue-sharing contract and a two-part tariff contract are proposed to coordinate the manufacturer-led decentralized system with technology investment. The results show that the former cannot coordinate the supply chain, while the latter can do it only if the retailer is risk-averse. Numerical examples are further offered to illustrate the effects of risk aversion on system coordination under the two-part tariff contract.