The effects of subsidy programs in byproduct synergy operations

Abstract

Byproduct synergy (BPS) is an innovative waste disposal approach. Waste resulting from manufacturers’ production processes is disposed of at processing plants and converted into a recycled byproduct. To reduce the inefficiency of a decentralized supply chain and enhance BPS operations, we consider a subsidy program scheme and analyze different supply chain scenarios: a centralized supply chain without subsidies and a decentralized supply chain with or without subsidies. We discuss different policymaker objectives (i.e., concerned only with social welfare and concerned with both social welfare and environmental impacts). Our results show that when the policymaker cares only about social welfare, the subsidy program always enhances BPS operations. The subsidy program brings more prime products when the BPS’s relative market value is high and less emissions are produced when the BPS’s relative market value is low. When the policymaker cares about both social welfare and environmental impacts, the subsidy program can enhance BPS operations unless the market values of BPS and the prime product are relatively low. Moreover, when the market value of BPS is medium high and the market value of the prime product is low, the policymaker can reduce production emissions by motivating the manufacturer to reduce production quantity of the prime product and encouraging the plant to reduce BPS capacity. When the market value of BPS is low, the policymaker can reduce emissions through efficient production process by only motivating the plant to enhance BPS capacity.