Cost-sharing of carbon abatement investment in a capital-constrained supply chain

Abstract

This paper studies the equilibrium of a low-carbon supply chain financing system with a bank, a retailer and a capital-constrained manufacturer. The impacts of cost-sharing in carbon abatement investment on the operational decisions and performance of the system are explored. Results show that the cost-sharing of the retailer will not affect its own wholesale price quotation and the production decision of the manufacturer but increase carbon abatement level of the system and bring a positive environmental externality. Furthermore, when the proportion of cost-sharing of the retailer is smaller than a threshold, the joint “economic-environmental” benefit of the system will be enhanced.