Green Product Subsidy Under ESG Consideration and Chain‐to‐Chain Competition

Abstract

Subsidy policy plays a key role in promoting the development of the green product market. How to effectively design and use subsidies to promote the performance of enterprises and their supply chains on environmental, social, and governance (ESG) is still an issue to be deeply discussed. Considering the impact of chain‐to‐chain (C2C) competition on the formulation of subsidy strategy, and the fact that most of the current research focuses on the single dimension of economy or environment when discussing green product subsidies this study builds the game‐theoretic model to construct a green product distribution market with C2C competition and investigates the government's green product subsidy strategy and its impact on the three dimensions of ESG. The results show that, first, the government's environmental attitude has a profound impact on its policy choices. When the government attaches great importance to environmental damage, it is more inclined to subsidize manufacturers. On the contrary, if the government attaches low importance to environmental damage, it is likely to subsidize consumers. If the government is neutral but consumers are highly sensitive to green products, the government may choose not to subsidize them. Second, it is interesting to note that in most cases governments tend to subsidize manufacturers, which usually reduces environmental damage. Subsidizing consumers, however, may exacerbate environmental damage. In addition, when both government and consumer awareness of environmental protection are weak, subsidies only encourage manufacturers to achieve a suboptimal level of green product. These insights provide valuable references for governments making policy or supply chain managers making ESG decisions.