Optimal Government Subsidy Decision and Its Impact on Sustainable Development of a Closed-Loop Supply Chain

Abstract

Government subsidies generally play an important role in the sustainable operations management of a closed-loop supply chain (CLSC). This paper investigates the optimal government subsidy decision and its influence on the sustainable development of the CLSC, consisting of one manufacturer, one retailer, and one third-party collector, from the economic, environmental, and social perspectives. Based on game analysis technology, different Stackelberg game models among the government and the CLSC members are formulated to analyze the optimal decisions under different power structures. By conducting theoretic comparative and sensitivity analyses and a case study, the effects of the government subsidy and the power structure are explored from the total profit, environmental benefit, and social welfare. Results show that the subsidy is good for sustainable development of the CLSC, which improves the total profit of the CLSC members, environmental benefit, and social welfare and the improvement effect is more prominent when the CLSC members have unequal bargaining power. Moreover, according to the growth proportion of profit, the retailer and collector benefit more from the subsidy among the CLSC members when they have different bargaining power, otherwise, the CLSC members benefit equally from the subsidy, and the subsidy is more beneficial to the environment compared with the total supply chain profit and social welfare.

Keywords

• closed-loop supply chain
• government subsidy
• sustainable development
• power structure