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Decision-making in closed-loop supply chains: Effects of government subsidies and risk aversion

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  • Song, Huaixi
  • Li, Quanxi

Abstract

Closed-loop supply chains (CLSCs) play a crucial role in promoting sustainable resource management, yet their implementation faces challenges in balancing economic viability with environmental goals. While existing research has explored various aspects of CLSC operations, the interplay between government subsidies and risk-averse behavior of supply chain members remains understudied, particularly in systems involving third-party recyclers. This gap hinders the development of effective policies and management strategies for sustainable CLSCs. Herein, we employ a Stackelberg game-theoretic model to investigate decision-making processes in CLSCs under four distinct subsidy scenarios, incorporating risk aversion through mean-variance utility functions. Our results reveal that subsidy effectiveness significantly depends on remanufacturing costs and risk attitudes of supply chain participants. When remanufacturing costs are high, subsidizing third-party recyclers yields superior environmental and economic outcomes, whereas manufacturer subsidies prove more effective when these costs are low. Moreover, we identify critical thresholds in subsidy levels and risk aversion that alter decision-making patterns. These findings provide a framework for designing targeted subsidy policies and risk management strategies in CLSCs, advancing the field of sustainable supply chain management by offering nuanced insights into the complex dynamics between government interventions, risk preferences, and CLSC performance.

Suggested Citation

  • Song, Huaixi & Li, Quanxi, 2024. "Decision-making in closed-loop supply chains: Effects of government subsidies and risk aversion," International Review of Financial Analysis, Elsevier, vol. 96(PA).
  • Handle: RePEc:eee:finana:v:96:y:2024:i:pa:s1057521924004988
    DOI: 10.1016/j.irfa.2024.103566
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    References listed on IDEAS

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    More about this item

    Keywords

    Closed-loop supply chain; Government subsidies; Risk aversion; Game theory; Remanufacturing; Sustainable operations;
    All these keywords.

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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