IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v67y2021i7p4172-4190.html
   My bibliography  Save this article

Incentives and Emission Responsibility Allocation in Supply Chains

Author

Listed:
  • Sanjith Gopalakrishnan

    (Desautels Faculty of Management, McGill University, Montreal, Quebec H3A 1G5, Canada; Sauder School of Business, University of British Columbia, Vancouver, British Columbia V6T 1Z2, Canada)

  • Daniel Granot

    (Sauder School of Business, University of British Columbia, Vancouver, British Columbia V6T 1Z2, Canada)

  • Frieda Granot

    (Sauder School of Business, University of British Columbia, Vancouver, British Columbia V6T 1Z2, Canada)

  • Greys Sošić

    (Marshall School of Business, University of Southern California, Los Angeles, California 90089)

  • Hailong Cui

    (Marshall School of Business, University of Southern California, Los Angeles, California 90089; Carlson School of Management, University of Minnesota, Minneapolis, Minnesota 55455)

Abstract

Because greenhouse-gas (GHG) emissions from the supply chains of just the 2,500 largest global corporations account for more than 20% of global emissions, rationalizing emissions in supply chains could make an important contribution toward meeting the global CO 2 emission-reduction targets agreed upon in the 2015 Paris Climate Agreement. Accordingly, in this paper, we consider supply chains with joint production of GHG emissions, operating under either a carbon-tax regime, wherein a regulator levies a penalty on the emissions generated by the firms in the supply chain, or an internal carbon-pricing scheme. Supply chain leaders, such as Walmart, are assumed to be environmentally motivated to induce their suppliers to abate their emissions. We adopt a cooperative game-theory methodology to derive a footprint-balanced scheme for reapportioning the total carbon emissions amongst the firms in the supply chain. This emission responsibility-allocation scheme, which is the Shapley value of an associated cooperative game, is shown to have several desirable characteristics. In particular, (i) it is transparent and easy to compute; (ii) when the abatement-cost functions of the firms are private information, it incentivizes suppliers to exert pollution-abatement efforts that, among all footprint-balanced allocation schemes, minimize the maximum deviation from the socially optimal pollution level; and (iii) the Shapley value is the unique allocation mechanism satisfying certain contextually desirable properties.

Suggested Citation

  • Sanjith Gopalakrishnan & Daniel Granot & Frieda Granot & Greys Sošić & Hailong Cui, 2021. "Incentives and Emission Responsibility Allocation in Supply Chains," Management Science, INFORMS, vol. 67(7), pages 4172-4190, July.
    • Handle: RePEc:inm:ormnsc:v:67:y:2021:i:7:p:4172-4190
    DOI: 10.1287/mnsc.2020.3724
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.2020.3724
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.2020.3724?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Ian W.H. Parry & Michael Toman, 2002. "Early Emission Reduction Programs: An Application to CO2 Policy," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 73-95.
    2. Martin Kaae Jensen, 2018. "Distributional Comparative Statics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(1), pages 581-610.
    3. Mingming Leng & Mahmut Parlar, 2009. "Allocation of Cost Savings in a Three-Level Supply Chain with Demand Information Sharing: A Cooperative-Game Approach," Operations Research, INFORMS, vol. 57(1), pages 200-213, February.
    4. Rodrigues, Joao & Domingos, Tiago & Giljum, Stefan & Schneider, Francois, 2006. "Designing an indicator of environmental responsibility," Ecological Economics, Elsevier, vol. 59(3), pages 256-266, September.
    5. David Malueg & Andrew Yates, 2009. "Bilateral Oligopoly, Private Information, and Pollution Permit Markets," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 43(4), pages 553-572, August.
    6. Astrid Kander & Magnus Jiborn & Daniel D. Moran & Thomas O. Wiedmann, 2015. "National greenhouse-gas accounting for effective climate policy on international trade," Nature Climate Change, Nature, vol. 5(5), pages 431-435, May.
    7. Nimrod Megiddo, 1978. "Computational Complexity of the Game Theory Approach to Cost Allocation for a Tree," Mathematics of Operations Research, INFORMS, vol. 3(3), pages 189-196, August.
    8. Lenzen, Manfred & Murray, Joy & Sack, Fabian & Wiedmann, Thomas, 2007. "Shared producer and consumer responsibility -- Theory and practice," Ecological Economics, Elsevier, vol. 61(1), pages 27-42, February.
    9. Felipe Caro & Charles J. Corbett & Tarkan Tan & Rob Zuidwijk, 2013. "Double Counting in Supply Chain Carbon Footprinting," Manufacturing & Service Operations Management, INFORMS, vol. 15(4), pages 545-558, October.
    10. Nagarajan, Mahesh & Sosic, Greys, 2008. "Game-theoretic analysis of cooperation among supply chain agents: Review and extensions," European Journal of Operational Research, Elsevier, vol. 187(3), pages 719-745, June.
    11. Sugato Bhattacharyya & Francine Lafontaine, 1995. "Double-Sided Moral Hazard and the Nature of Share Contracts," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 761-781, Winter.
    12. Michael G. Luchs & Minu Kumar, 2017. "“Yes, but this Other One Looks Better/Works Better”: How do Consumers Respond to Trade-offs Between Sustainability and Other Valued Attributes?," Journal of Business Ethics, Springer, vol. 140(3), pages 567-584, February.
    13. S. C. Littlechild & G. Owen, 1973. "A Simple Expression for the Shapley Value in a Special Case," Management Science, INFORMS, vol. 20(3), pages 370-372, November.
    14. Charles J. Corbett & Gregory A. DeCroix, 2001. "Shared-Savings Contracts for Indirect Materials in Supply Chains: Channel Profits and Environmental Impacts," Management Science, INFORMS, vol. 47(7), pages 881-893, July.
    15. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-1277, November.
    16. Battaglini, Marco, 2006. "Joint production in teams," Journal of Economic Theory, Elsevier, vol. 130(1), pages 138-167, September.
    17. Chonnikarn (Fern) Jira & Michael W. Toffel, 2013. "Engaging Supply Chains in Climate Change," Manufacturing & Service Operations Management, INFORMS, vol. 15(4), pages 559-577, October.
    18. Blanca Gallego & Manfred Lenzen, 2005. "A consistent input-output formulation of shared producer and consumer responsibility," Economic Systems Research, Taylor & Francis Journals, vol. 17(4), pages 365-391.
    19. Rodrigues, João & Domingos, Tiago, 2008. "Consumer and producer environmental responsibility: Comparing two approaches," Ecological Economics, Elsevier, vol. 66(2-3), pages 533-546, June.
    20. Sudhölter, Peter & Zarzuelo, José M., 2017. "Characterizations of highway toll pricing methods," European Journal of Operational Research, Elsevier, vol. 260(1), pages 161-170.
    21. Çiftçi, BarIs & Borm, Peter & Hamers, Herbert, 2010. "Highway games on weakly cyclic graphs," European Journal of Operational Research, Elsevier, vol. 204(1), pages 117-124, July.
    22. Pradeep Dubey, 1982. "The Shapley Value as Aircraft Landing Fees--Revisited," Management Science, INFORMS, vol. 28(8), pages 869-874, August.
    23. Daniel Granot & Greys Sošić, 2003. "A Three-Stage Model for a Decentralized Distribution System of Retailers," Operations Research, INFORMS, vol. 51(5), pages 771-784, October.
    24. Corbett, Charles J. & DeCroix, Gregory A. & Ha, Albert Y., 2005. "Optimal shared-savings contracts in supply chains: Linear contracts and double moral hazard," European Journal of Operational Research, Elsevier, vol. 163(3), pages 653-667, June.
    25. Plambeck, Erica L., 2012. "Reducing greenhouse gas emissions through operations and supply chain management," Energy Economics, Elsevier, vol. 34(S1), pages 64-74.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Li, Yue & Jiao, Bing & Li, Lin & Zhao, Ruiqing, 2024. "Does bank-tax-interaction benefit small and medium manufacturer? An intertemporal signaling game," International Journal of Production Economics, Elsevier, vol. 271(C).
    2. Cai, Jianhu & Jiang, Feiying, 2023. "Decision models of pricing and carbon emission reduction for low-carbon supply chain under cap-and-trade regulation," International Journal of Production Economics, Elsevier, vol. 264(C).
    3. Xia, Liangjie & Li, Kang & Wang, Jun & Xia, Yi & Qin, Juanjuan, 2024. "Carbon emission reduction and precision marketing decisions of a platform supply chain," International Journal of Production Economics, Elsevier, vol. 268(C).
    4. Li, Zhiwen & Xu, Xianhao & Bai, Qingguo & Chen, Cheng & Wang, Hongwei & Xia, Peng, 2023. "Implications of information sharing on blockchain adoption in reducing carbon emissions: A mean–variance analysis," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 178(C).
    5. Christian Basteck & Frank Huettner, 2023. "Coalitional Manipulations and Immunity of the Shapley Value," Papers 2310.20415, arXiv.org.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sanjith Gopalakrishnan & Daniel Granot & Frieda Granot, 2021. "Consistent Allocation of Emission Responsibility in Fossil Fuel Supply Chains," Management Science, INFORMS, vol. 67(12), pages 7637-7668, December.
    2. Rosa van den Ende & Antoine Mandel & Agnieszka Rusinowska, 2023. "Network-based allocation of responsibility for GHG emissions," Post-Print halshs-04188365, HAL.
    3. Felipe Caro & Charles J. Corbett & Tarkan Tan & Rob Zuidwijk, 2013. "Double Counting in Supply Chain Carbon Footprinting," Manufacturing & Service Operations Management, INFORMS, vol. 15(4), pages 545-558, October.
    4. Xu, Xueliu & Wang, Qian & Ran, Chenyang & Mu, Mingjie, 2021. "Is burden responsibility more effective? A value-added method for tracing worldwide carbon emissions," Ecological Economics, Elsevier, vol. 181(C).
    5. Serrano, Mònica & Dietzenbacher, Erik, 2010. "Responsibility and trade emission balances: An evaluation of approaches," Ecological Economics, Elsevier, vol. 69(11), pages 2224-2232, September.
    6. M. Cordier & T. Poitelon & W. Hecq, 2019. "The shared environmental responsibility principle: new developments applied to the case of marine ecosystems," Economic Systems Research, Taylor & Francis Journals, vol. 31(2), pages 228-247, April.
    7. Li, Meng & Meng, Bo & Gao, Yuning & Wang, Zhi & Zhang, Yaxiong & Sun, Yongping, 2022. "Tracing CO2 emissions in global value chains: Multinationals vs. domestically-owned firms," Sustainable Global Supply Chains Discussion Papers 2, Research Network Sustainable Global Supply Chains.
    8. Boya Zhang & Shukuan Bai & Yadong Ning & Tao Ding & Yan Zhang, 2020. "Emission Embodied in International Trade and Its Responsibility from the Perspective of Global Value Chain: Progress, Trends, and Challenges," Sustainability, MDPI, vol. 12(8), pages 1-26, April.
    9. Zhang, Youguo, 2013. "The responsibility for carbon emissions and carbon efficiency at the sectoral level: Evidence from China," Energy Economics, Elsevier, vol. 40(C), pages 967-975.
    10. Zhang, Youguo, 2010. "Supply-side structural effect on carbon emissions in China," Energy Economics, Elsevier, vol. 32(1), pages 186-193, January.
    11. Wiedmann, Thomas, 2009. "A review of recent multi-region input-output models used for consumption-based emission and resource accounting," Ecological Economics, Elsevier, vol. 69(2), pages 211-222, December.
    12. Fei Gao & Gilvan C. Souza, 2022. "Carbon Offsetting with Eco-Conscious Consumers," Management Science, INFORMS, vol. 68(11), pages 7879-7897, November.
    13. Maria Csutora & Zs�fia Vetőn� m�zner, 2014. "Proposing a beneficiary-based shared responsibility approach for calculating national carbon accounts during the post-Kyoto era," Climate Policy, Taylor & Francis Journals, vol. 14(5), pages 599-616, September.
    14. Lenzen, Manfred & Murray, Joy, 2010. "Conceptualising environmental responsibility," Ecological Economics, Elsevier, vol. 70(2), pages 261-270, December.
    15. Zhiyong Yang & Wenjie Dong & Jinfeng Xiu & Rufeng Dai & Jieming Chou, 2015. "Structural Path Analysis of Fossil Fuel Based CO2 Emissions: A Case Study for China," PLOS ONE, Public Library of Science, vol. 10(9), pages 1-25, September.
    16. Dong, Baomin & Wang, Fei & Guo, Yibei, 2016. "The global EKCs," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 210-221.
    17. Marques, Alexandra & Rodrigues, João & Lenzen, Manfred & Domingos, Tiago, 2012. "Income-based environmental responsibility," Ecological Economics, Elsevier, vol. 84(C), pages 57-65.
    18. Airebule, Palizha & Cheng, Haitao & Ishikawa, Jota, 2023. "Assessing carbon emissions embodied in international trade based on shared responsibility," Journal of the Japanese and International Economies, Elsevier, vol. 68(C).
    19. Marques, Alexandra & Rodrigues, João & Domingos, Tiago, 2013. "International trade and the geographical separation between income and enabled carbon emissions," Ecological Economics, Elsevier, vol. 89(C), pages 162-169.
    20. Csóka, Péter & Illés, Ferenc & Solymosi, Tamás, 2022. "On the Shapley value of liability games," European Journal of Operational Research, Elsevier, vol. 300(1), pages 378-386.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:67:y:2021:i:7:p:4172-4190. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.