Optimal subsidy and recycling mode of waste cooking oil under asymmetric information

Abstract

With the increasingly serious energy crisis and environmental problems, the production of bio-fuel from waste cooking oil (WCO) has attracted government’s attention around the world. Appropriate government subsidies and recycling modes can effectively promote the recycling of WCO. The government can provide subsidies to the bio-firm or the recycler, and the bio-firm can complete the recycling activity herself or entrust an independent recycler. This paper applies a principal-agent contract in a reverse supply chain which includes the government, bio-firm and recycler to probe into the optimal subsidy and recycling mode strategy under asymmetric recycling cost information of the recycler. Analysing and comparing the different subsidy and recycling mode strategies, we find that case BT, which refers that the government should subsidize bio-firm rather than recycler and the bio-firm should entrust recycler to collect WCO, is preferred by both the government and the bio-firm due to the higher recycling quantity and profits. Furthermore, the three players are all inclined to case BT when the recycling cost is relatively small. Last, the total collected quantity will decrease when the information turns to be asymmetric, which makes the supply chain less-efficient.