Supply Chain Emission Reduction Decisions, Considering Overconfidence under Conditions of Carbon Trading Price Volatility

Abstract

To investigate the effects of carbon trading pricing and overconfidence on supply chain emission reduction decisions, this paper establishes a supply chain model consisting of a manufacturer and a retailer and applies the Stackelberg game model. The objective is to explore the effects of carbon trading pricing and overconfidence on supply chain members’ decisions and profits. The study shows that carbon trading prices can be a good guide for low-cost manufacturers to reduce emissions when manufacturers are rational under carbon trading policies. However, the ability of carbon trading prices to act as a guide starts to fail as the cost of emission reduction increases. When manufacturers are overconfident, this causes manufacturers to increase the emission reduction rate of their products under carbon trading policies. In addition, this effect increases in line with increases in carbon trading prices. When manufacturers face different emission reduction costs, higher carbon trading prices do not necessarily always generate benefits for rational manufacturers. For overconfident manufacturers, however, overconfidence is always detrimental, especially when the price of carbon trading increases. Retailers tend to choose to work with manufacturers who are less overconfident, when the higher price of carbon trading results in higher gains for the retailer.