Incentive conflict and supply contracts under carbon cap policy.

ABSTRACT: Environmental regulations, once promulgated, can cause incentive conflict between manufacturers and suppliers. A manufacturer facing the regulation may undertake choices that can affect his sourcing decisions with the supplier. To analyze this, we develop a game-theoretic model considering a manufacturer who faces a per-unit carbon emissions cap and sources from a supplier. The manufacturer operates in a carbon sensitive market. We analyze the responses of the manufacturer and supplier and show that since the burden of carbon emissions cap is borne by the manufacturer, the first-best outcomes are not reached. Therefore, the supplier may offer different contracts to incentivize the manufacturer. We study two mechanisms: the two-part tariff and the revenue-and-investment sharing contracts. W

SUBMITTER: Kuiti MR 

PROVIDER: S-EPMC9671477 | biostudies-literature | 2022

REPOSITORIES: biostudies-literature