Optimal production and subsidy rate considering dynamic consumer green perception under different government subsidy orientations

Abstract

Consumers have dynamic perception on product’s green quality, which will have an important impact on the production strategy of the supply chain. Focusing on a three-player supply chain consisting of a government, a manufacturer and a retailer, the paper investigates the optimal production and subsidy rate of the supply chain considering consumer environmental awareness (CEA) is dynamic. The paper develops a differential game based model to explore the optimal production and subsidy rate considering government’s different goals of social welfare maximization and governmental utility maximization. Our study shows that the subsidy rate increases with the CEA under social welfare orientation but decreases with the CEA under governmental utility orientation. Moreover, we find that the subsidy policy under governmental utility orientation can target more consumer groups compared to the subsidy policy under social welfare orientation. The social welfare under the social welfare orientation is always negative, while governmental utility under governmental utility orientation is positive in some cases. However, under governmental utility orientation, the profit of the centralized supply chain is lower than that of the decentralized supply chain. Further, the limited subsidy under governmental utility orientation can avoid this disadvantage while achieving improvement in green quality.