A Stackelberg game model for insurance contracts in green supply chains with government intervention involved

There is often a noticeable lack of coordination in green supply chains induced by the conflict of goals, which weakens the chains’ performance. Ignoring this problem sometimes causes the system to fail. In such cases, governments may intervene to coordinate supply chains and reduce their pollutants. Governments themselves have large state-owned companies such as gas, oil and electricity which include many suppliers that provide the needed products. One way of coordinating green supply chains with government intervention is to use contracts. This study deals with green supply chain coordination with government intervention through mediating state-owned companies and the implementation of insurance. One of the important contributions of this paper is considering the insurance contract in coordinating the green supply chain. The defined insurance contract structure seeks to reduce the risk of apparent bankruptcy and, thus, reduce pollutants. The performance of the provided insurance contract is comparable to that of the cost-sharing contract as a commonly used tool to coordinate green supply chains with government interventions. The model used in this study is the bi-level extensive game model with the Stackelberg approach. At the first level, the employer, i.e., a state-owned company and the government, is postulated as the leader. At the second level, the suppliers are placed as followers. As the model is formulated as a mixed integer program, another contribution of the paper is developing a hybrid algorithm to solve the corresponding problem. The contracts are compared in three scenarios and four states. The results show the superiority of the insurance contract over the cost-sharing contract.