The Reward-Penalty Mechanism in a Closed-Loop Supply Chain with Asymmetric Information of the Third-Party Collector

Wenbin Wang,Jie Guan,Shiyuan Quan,Jia Lv,Ni An,Liu Zhi

doi:10.1155/2021/4659019

Abstract

This paper investigates the reward-penalty mechanism (RPM) implemented by the government in a closed-loop supply chain (CLSC) with asymmetric information. The manufacturer produces and sells products to consumers, while the collection of waste electrical and electronic equipment (WEEE) is delegated to the third-party collector, the one who has private information about the collection effort level. An information screening contract for the manufacturer is put forward to obtain the private information from the third-party collector, which is composed of buy-back price and franchise fee. By utilizing principal-agent theory, two cases are mainly examined including the CLSC without the RPM and the CLSC with the RPM. The results demonstrate that (i) the information screening contract is effective in capturing the collector’s collection effort level, (ii) raising the buy-back price to motivate the third-party collector is confirmed to perform well on enhancing the collection quantity from consumers, (iii) H-type collector collects more WEEEs and earns more profits than L-type collector, and (iv) the RPM improves the collection quantity of the enterprise and reaps more environmental benefits. The numerical results verify the validity of the contract and the feasibility of the RPM.

Highlights

The supervision of the government plays an essential role in the closed-loop supply chain (CLSC)
Reward-penalty mechanism (RPM) is intended as the policy to encourage CLSC members to perform collection efficiently, which operates with the targeted collection quantity and the reward-penalty intensity
In a two-stage CLSC, the manufacturer produces and sells products to consumers, and the collection of waste electrical and electronic equipment (WEEE) is deputed to the third-party collector. e third-party collector is assumed to choose different collection effort levels including high level and low level, all of which are the third-party collector’s private information. erefore, the third-party collector is divided into an H-type collector and an L-type collector. e manufacturer masters the probability of the third-party collector who adopts a high collection effort level

Summary

Literature Review

Our paper mainly involves three aspects of literature: the third-party collection channel, the asymmetric information, and the government’s intervention in the CLSC. Wang et al [15] consider the role of an information screening contract when the retailer shares the collection effort level information with the manufacturer in CLSC. Ma et al [23] design the optimal contract for a supply chain where the manufacturer’s social responsibility is asymmetric information. Wang et al [25] design the contract mechanism for a supply chain consisting of one risk-neutral retailer and one risk-neutral supplier who has private production costs. Erefore, we consider the asymmetric information about the collection effort level of the collector who is responsible for the collection operation and analyze how to design an information screening contract for the manufacturer to capture the private information of the collector. We develop the direct channel and assume that the manufacturer sells products to consumers directly, which is different from Wang et al [30]

Problem Formulation

The Model

Numerical Examples

The process of solving Case 1