What Drives Green Innovation? A Game Theoretic Analysis of Government Subsidy and Cooperation Contract

Weimin Ma,Shiwei Chai,Ranran Zhang

doi:10.3390/su11205584

Abstract

Green innovation, implemented by enterprises, contributes to sustainable development and environmental protection. However, because of the high cost and high risk of green innovation, enterprises are reluctant to step into green innovation activities in practice. Government subsidies are conducive to promoting green innovation in enterprises. To investigate firms’ preferences for green innovation, we consider a three-player game in a supply chain where a government offers subsidies (price, innovation, or both subsidies) to a manufacturer and a retailer, while the latter two players cooperate with each other through contracts (revenue-sharing and cost-sharing contracts). By exploring the impacts of government subsidies and cooperative contracts on the optimal level of green innovation efforts and profits of participants, we find that: (1) for green innovation that leads to increased production costs, the government should subsidize both the retailer and the manufacturer to improve the level of green innovation; (2) the revenue-sharing contract is more effective than the cost-sharing contract under the premise of government subsidies; and (3) the revenue-sharing ratio decreases in production and innovation costs, while the cost-sharing ratio increases in these two costs.

Highlights

Consumers, governments and the media are putting increasing pressure on environmental protection and energy conservation, which has prompted enterprises around the world to step into “green” scenes to maintain a competitive edge and improve environmental quality [1,2,3]
Based on this new hypothesis, our research shows that the government should subsidize both retailers and manufacturers to promote the development of green innovation, which enriches the literature on green innovation
Our research shows that the revenue-sharing contract is superior to the cost-sharing contract and an increase in government subsidies would raise the sharing ratio under revenue-sharing contracts, which fills the gap in the study of the impact of government subsidies on contracts

Summary

Introduction

Governments and the media are putting increasing pressure on environmental protection and energy conservation, which has prompted enterprises around the world to step into “green” scenes to maintain a competitive edge and improve environmental quality [1,2,3]. Green product innovation has long been a key avenue for revenue and profit growth [2] and mitigating environmental impact [4] in certain sectors (e.g., Philips uses green marketing for “Marathon” and product sales have increased by 12%, saving $26 per unit of energy cost over its five-year lifetime [5]). IKEA, for example, emphasizes environmental protection and sustainability in its production process [7]; H&M and Levis are using new technologies to reduce carbon emissions in manufacturing [8]. Despite these validating examples, many companies still face the problem of how to effectively invest in green innovation to increase the greenness of their products [5]. Governments around the world are encouraging firms to promote sustainability (e.g., Europe, the United States, Canada, and China) [11]

Objectives

Findings

Discussion

Conclusion