Tax or subsidy? Design and selection of regulatory policies for remanufacturing

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This study investigates a regulatory policy design and selection problem for a social-welfare-maximizing regulator, whose policies influence the remanufacturing production of a profit-maximizing manufacturer. The decisions of the regulator and the manufacturer are characterized by a Stackelberg game model, where three regulatory policies, namely, a tax policy, a subsidy policy, and a tax-subsidy policy are considered. Analytical results show that regulatory policies cannot always promote remanufacturing, which goes against the original intention of the regulator who hopes to encourage remanufacturing via regulatory policies. Accordingly, we address regulatory policy design strategies to help the regulator make policy-making decisions on respective regulatory policies. We then propose a threshold-based regulatory policy selection strategy to aid the regulator in making policy-choice decisions between the three policies. Further analyses indicate that the quality of available cores and the environmental treatment cost essentially influence the policy selection decisions of the regulator. The selected policy helps the regulator achieve maximum social welfare with the best environmental performance in most cases. An interesting finding in this study is that when the subsidy policy is selected, it is superior to the tax policy in improving social welfare and economic benefit, but may lead to heavier environmental burdens.