Abstract
To establish a micro foundation to understand the impacts of greenhouse gas (GHG) emission regulations and financial development levels on firms’ GHG emissions, we build a two-stage dynamic game model to incorporate GHG emission regulations (in terms of an emission tax) and financial development (represented by the corresponding financing cost) into a two-echelon supply chain. With the subgame perfect equilibrium, we identify the conditions to determine whether an emission regulatory policy and/or financial development can affect GHG emissions in the supply chain. We also reveal the impacts of the strictness of GHG emission regulation, the financial development level, and the unit GHG emission rate on the operations of the supply chain and the corresponding profitability implications. Managerial insights are also discussed.
Highlights
In recent years, climate change and its implications for the human race have emerged as one of the most important themes in debates about the relationship between global environmental protection and economic performance
Recognizing the interfirm interactions and the uneven distribution of resources, we examine how firms in a two-echelon supply chain strategically respond to government regulation and explore the corresponding implications of environmental (GHG abatement) and economic performance
If rd > rd#, the supplier is not willing to transfer the tax costs by wholesale prices, nor does the retailer have any incentive to finance. This again results in constant revenue for the supplier and the regulatory policies and financial development to be ineffective at managing greenhouse gas (GHG) emissions in the supply chain
Summary
Climate change and its implications for the human race have emerged as one of the most important themes in debates about the relationship between global environmental protection and economic performance. On the other hand, faced with a possible change in regulatory policy, managers of firms hope to know how regulation affects their operations and the corresponding environmental and economic performance. Recognizing the interfirm interactions and the uneven distribution of resources, we examine how firms in a two-echelon supply chain strategically respond to government (or NGO) regulation and explore the corresponding implications of environmental (GHG abatement) and economic performance. Our results identify the conditions under which GHG emission regulation (in terms of an emission tax) and financial development (represented by the corresponding interest rate) effectively affect firms’ GHG emissions and explore how they do so This helps to provide a theoretical foundation to respond to the current debate on the effectiveness of regulatory policies and the impact of financial development.
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