Optimal contract design for a supply chain with information asymmetry under dual environmental responsibility constraints

Abstract

Under dual constraints of green production responsibility and recycling responsibility, the optimal contract between upstream and downstream firms is crucial to achieve low-carbon development, but information asymmetry poses a great challenge to the above contract design. Based on Stackelberg game theory, this paper develops a contract model in a supply chain with information asymmetry under dual environmental responsibility constraints, in which the producer invests in green technology while the retailer exerts green marketing efforts. The paper aims to explore how the producer designs optimal contracts under the different information structures to improve environmental performance while ensuring profitability. Results indicate that: (i) in the full information scenario, the two-part optimal contract makes the decentralized supply chain to achieve the same channel profit and carbon emissions as the centralized scenario. (ii) In the information asymmetry scenario, the producer should design differentiated contract configurations for different types of retailers to eliminate double marginalization. That is, the producer designs low wholesale price and high side payment for the high-type retailer, which enables the producer to earn high profit with low carbon emissions and makes the retailer to obtain additional information profit. While under some conditions, the producer considers the possibility of terminating cooperation with the retailer of low-type, as such a cutoff policy not only guarantees the profitability of the channel members but also improves environmental performance. Furthermore, the impact of some key factors on firms’ decisions, profits, and equilibrium carbon emissions is summarized to guide management decisions.