Incentive Mechanism to Promote Supplier's R&D of Green Technology in Supply Chain

Abstract

For a two-echelon supply chain consisted of one manufacturer and one supplier, the incentive mechanism is designed for the supplier to reduce the production cost of green intermediate products by the manufacturer. It is proposed under the situation of asymmetric information on the endeavor level of supplier to promote the initiative of suppliers technology R&D. The design process of the incentive mechanism in the face of moral hazard problems is discussed by the manufacturer. It indicates that the manufacturer can adopt linear incentive payment according to different periods of producing and marketing. The results manifest that the proposed incentive mechanism will promote the supplier's efforts on R&D as far as possible and make the profits of the members Pareto improvement distinctly. The paper affords great guidance on operating decisions for the green supply chain at initial stages of the green market.