Please wait a minute...
Shopping Cart Email List Chinese
Advanced Search Fig/Tab
Frontiers of Engineering Management

ISSN 2095-7513

ISSN 2096-0255(Online)

CN 10-1205/N

Postal Subscription Code 80-905

Featured Articles  |  Most Downloaded  |  Most Reading
Online Submission Subscribe to Our RSS Content Feed
Front. Eng    2015, Vol. 2 Issue (3) : 277-286    https://doi.org/10.15302/J-FEM-2015049
Engineering Management Theories and Methodologies
The Supply Chain Contract Design under Cap-and-Trade Mechanism with Free Riding
Fu-qiang Wang(),Jun Liu
Collaborative Innovation Center of Resource-conserving & Environment-friendly Society and Ecological Civilization, School of Business, Central South University, Changsha 410083, China
 Download: PDF(136 KB)   HTML
 Export: BibTeX | EndNote | Reference Manager | ProCite | RefWorks
Abstract

This paper studies the influence of free riding on enterprise product pricing and carbon emissions reduction investment, as well as the contract design to achieve supply chain coordination under the carbon trading mechanism. First, we discuss the situation where carbon emissions reduction investment affects the product price and income. It demonstrates that the optimal investment of the upstream manufacturer increases with the degree of the free riding of the downstream manufacturer. The upstream manufacturer can improve their carbon reduction investment and the whole supply chain achieves Pareto improvement when the investment cost sharing contract is introduced. Nevertheless, under the cost-sharing contract the optimal investment of the decentralized supply chain is still lower than that of the centralized supply chain, and only in some particular cases can the two types of supply chain achieve equal total profits. Then, we preliminarily explore the situation where the product price and income is influenced by carbon emissions reduction investment. The consequences indicate that the optimal investment of the upstream manufacturers in this situation is less than the former one’s, and the transfer payment mechanism is able to improve the level of the supply chain overall carbon emissions-reduction. Moreover, compared to the former situation, the effects of free riding of the downstream manufacturer are even more serious. The conclusions can provide some intellectual support for manufacturing enterprises to make reasonable emissions reduction strategies and coordinate the supply chain existing in free riding.
Keywords carbon emissions reduction      free riding      supply chain contract design      cap-and-trade     
Corresponding Author(s): Fu-qiang Wang   
Online First Date: 01 March 2016    Issue Date: 21 March 2016
 Cite this article:   
Fu-qiang Wang,Jun Liu. The Supply Chain Contract Design under Cap-and-Trade Mechanism with Free Riding[J]. Front. Eng, 2015, 2(3): 277-286.
 URL:  
https://academic.hep.com.cn/fem/EN/10.15302/J-FEM-2015049
https://academic.hep.com.cn/fem/EN/Y2015/V2/I3/277
Variables Meanings
E M i Fixed carbon emissions of the manufacturer Mi, which has nothing to do with the product yield, i = 1, 2
Q Market demand
N Capacity of the market
b Demand price sensitive coefficient
c M i The cost of production per unit product for the manufacturer Mi, i = 1, 2
h M i The initial carbon emissions of production per unit product for the manufacturer Mi when they do not invest to reduce emissions, i = 1, 2
h ′ M i The carbon emissions of production per unit product for the manufacturer Mi, when they invest to reduce emissions, i = 1, 2
pc The unit price of carbon dioxide
ω The wholesale price
p The retail price
π M i The profit of the manufacturer Mi, i = 1, 2
I Investment to reduce emissions of the manufacturer Mi, i = 1, 2
π C The joint profit of the two manufacturers under centralized decision making
Z M i Carbon quota that the government allocates to the manufacturer Mi, i = 1, 2
m The sensitive coefficient of emissions reduction rate of carbon emissions reduction investment of the manufacturer M1
n The sensitive coefficient of emissions reduction rate of carbon emissions reduction investment of the manufacturer M2
Tab.1  The Related Variables and Their Meanings
1 Ai, X., Ma, J., Chen, Z., & Tang, X. (2011). Coordination mechanism of e-channel and traditional channel under service free-riding. Journal of Systems Engineering, 26, 507–514
2 Benjaafar, S., Li, Y., & Daskin, M. (2010). The Carbon Footprint of UHT Milk. Minneapolis: University of Minnesota Press
3 Benjaafar, S., Li, Y., & Daskin, M. (2013). Carbon footprint and the management of supply chains: Insights from simple models. IEEE Transactions on Automation Science and Engineering, 10, 99–116
https://doi.org/10.1109/TASE.2012.2203304
4 Cachon, G.P. (2014). Retail store density and the cost of greenhouse gas emissions. Management Science, 60, 1907–1925
https://doi.org/10.1287/mnsc.2013.1819
5 Carlton, D.W., & Chevalier, J.A. (2001). Free riding and sales strategies for the Internet. Journal of Industrial Economics, 49, 441–461
https://doi.org/10.1111/1467-6451.00157
6 Caro, F., Corbett, C.J., Tan, T., & Zuidwijk, R.A. (2013). Double counting in supply chain carbon footprinting. Manufacturing & Service Operations Management : M & SOM, 15, 545–558
https://doi.org/10.1287/msom.2013.0443
7 Chaabane, A., Ramudhin, A., & Paquet, M. (2012). Design of sustainable supply chains under the emission trading scheme. International Journal of Production Economics, 135, 37–49
https://doi.org/10.1016/j.ijpe.2010.10.025
8 Ding, Z., & Liu, Y. (2013). Revenue sharing contract in dual channel supply chain in case of free riding. Journal of Systems Engineering, 28, 370–376
9 Du, S., Dong, J., Liang, L., & Zhang, J. (2009). Optimal production policy with emission permits and trading. Chinese Journal of Management Science, 17, 81–86
10 Du, S., Ma, F., Fu, Z., Zhu, L., & Zhang, J. (2015). Game-theoretic analysis for an emission-dependent supply chain in a ‘cap-and-trade’ system. Annals of Operations Research, 228, 135–149
https://doi.org/10.1007/s10479-011-0964-6
11 He, D., & Ma, H. (2011). Strategy of enterprise production and store under constraints of carbon emission. Resources & Industries, 13, 63–68
12 Hua, G., Cheng, T., & Wang, S. (2011). Managing carbon footprints in inventory management. International Journal of Production Economics, 132, 178–185
https://doi.org/10.1016/j.ijpe.2011.03.024
13 Koomen, A. (2012). Evaluating the impact of system boundaries on decisions that affect CO2 emissions and costs (unpublished Master’s thesis). Eindhoven University of Technology, Eindhoven, The Netherlands
14 Li, Y., & Zhao, D. (2014). Low-carbonization supply chain two-part tariff coordination based on fairness preference. Management Review, 26, 159–167
15 Li, Y., & Zhao, D. (2015). Low-carbonization supply chain coordination with contracts considering fairness preference. Journal of Industrial Engineering and Engineering Management, 29, 156–161
16 Ma, Q., Song, H., & Chen, G. (2014). A study on low-carbon product pricing and carbon emission problems under the cap-and-trade system. Journal of Industrial Engineering and Engineering Management, 28, 127–136
17 Nayak, G., & Kumar, V. (2006). Jotun paints-product life cycle assessment.
18 Shi, Z., & Zhao, D. (2013). Research on cooperation alliance of carbon emission reduction in the supply chain based on voluntary market. Journal of Northwestern Polytechnical University, 33, 41–47 [Social Sciences]
19 Wang, Q.P., & Zhao, D.Z. (2014). Cooperative strategy of carbon emissions reduction and promotion in a two-echelon supply chain. Control and Decision, 29, 307–314
20 Xia, L., Zhao, D., He, L., & Li, Y. (2014). Game on carbon emission reduction and coordination based on side-payment self-enforcing contract between supplier and manufacturer. Chinese Journal of Management, 11, 750–757
21 Xie, X., & Zhao, D. (2013). Research on cooperation strategy of enterprises’ carbon emission reduction in low carbon supply chain. Journal of Management Science, 26, 108–119
22 Xing, D., & Liu, T. (2012). Sales effort free riding and coordination with price match and channel rebate. European Journal of Operational Research, 219, 264–271
https://doi.org/10.1016/j.ejor.2011.11.029
23 Xu, B., & Liu, L. (2014). A study of the order and information free-riding behavior of dual-channel supply chain based on CVaR criterion. Industrial Engineering Journal, 17, 99–107
24 Xu, C., Zhao, D., & Yuan, B. (2015). Study on coordination mechanisms and differential pricing of supply chain in low carbon environment. Operations Research and Management Science, 24, 19–26
25 Zhang, J., Nie, T., & Du, S. (2011). Optimal emission-dependent production policy with stochastic demand. International Journal of Society Systems Science, 3, 21–39
https://doi.org/10.1504/IJSSS.2011.038931
[1] Yue-Jun ZHANG, Jing-Yue LIU. Overview of research on carbon information disclosure[J]. Front. Eng, 2020, 7(1): 47-62.
Viewed
Full text


Abstract

Cited
  Shared   
  Discussed