Contract design for a retailer-dominated supply chain under asymmetric green investment cost information

Green supply chain management is an efficient approach in response to the environmental pressure in modern society. Information asymmetry and downstream retailer’s power are two typical features in the green supply chain, which significantly affect green investment efficiency. This study considers a two-echelon supply chain consisting of a dominant retailer who provides contract menus by determining the parameters of wholesale price and the corresponding lump-sum payment and a manufacturer who engages in green manufacturing and withholds the private investment cost information. Using a Stackelberg game framework, we characterize the optimal incentive contract parameters and determine the manufacturer’s equilibrium green investment level under both symmetric and asymmetric information structure. Our results reveal that the investment cost information asymmetry induces the Low-type manufacturer to invest aggressively while deters the manufacturer with high-type cost to make higher green investment. Furthermore, we find that the asymmetric information benefits the retailer when trading with a Low-type cost manufacturer, but hurts the retailer when trading with a High-type cost manufacturer. Finally, we also numerically discuss how the information asymmetry affects consumer surplus and social welfare. We hope that our results could provide valuable insights and suggestions for the manufacturer and retailer with regard to incentive contract design under asymmetry information structure.