Abstract
This paper presents a game-theoretical analysis of joint decisions on carbon emission reduction and inventory replenishment with overconfidence and consumer’s low-carbon preference for key supply chain players when facing effort-dependent demand. We consider respectively the overconfidence of a supplier who overestimates the impacts of his emission reduction efforts on product demand and the overconfidence of a retailer who underestimates the variability of the stochastic demand. We find, surprisingly, that the supplier’s overconfidence can mitigate “double marginalization” but hurt self-profit, while the retailer’s overconfidence can be an irrelevant factor for self-profit. The retailer aiming at short-term trading should actively seek an overconfident supplier, while the supplier should actively seek a rational retailer for whom the critical fractile is more than 0.5, whereas for an overconfident retailer, the critical fractile is less than or equal to 0.5. The study also underlines the effect of regulation parameters as an important contextual factor influencing low-carbon operations.
Highlights
The high-carbon economy, dominated by fossil fuels, leads to serious environmental problems around the world, especially air pollution
The Global Burden of Disease Study (GBD 2013) of the World Health Organization (WHO) forecasts that air pollution will lead to 1.3 million premature deaths and more than 27 million years of life lost each year at the beginning of 2030 in China [1]
Hereby, we focus on joint decisions on carbon emission reduction and inventory replenishment with overconfidence and low-carbon preference
Summary
The high-carbon economy, dominated by fossil fuels, leads to serious environmental problems around the world, especially air pollution. Ancarani et al [32] evidenced that overconfidence leads to worse performance in inventory management; by contrast, Li et al [37] found that overconfidence can potentially be a positive force We extend these studies by incorporating the notion of overconfidence as a cognitive bias into a low-carbon supply chain system and find that, contrary to intuitive reasoning, the retailer’s performance is independent of his overconfidence. Under the condition of effort-dependent demand, such overconfidence may significantly affect emission reduction decision and the performance of all parties We incorporate both overconfidence of decision makers and consumer’s low-carbon preference into the general newsvendor model under four different. We simultaneously integrate the consumer’s low-carbon preference and overconfidence of decision makers into the joint decisions process of carbon emission reduction and inventory replenishment, and explore the deviation from supply chain operation caused by both.
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