Subsidy or reward-penalty? The effects of government policies on environmental responsibility decisions in the prefabricated construction supply chain

Prefabricated construction has shifted environmental responsibilities (ERs) from on-site construction to off-site factories, necessitating both upstream and downstream enterprises in the supply chain assume these responsibilities. Environmental policies are key tools for incentivizing ER behavior in enterprises, but the choice between subsidies and penalties remains an important issue. This study evaluates the impact of subsidy and reward-penalty mechanisms on ER implementation within prefabricated construction supply chains (PCSC). A three-level supply chain model is developed based on the Stackelberg game, involving the government, contractor, and supplier. The paper analyzes optimal decision-making under both mechanisms and compares their environmental outcomes. The result indicates that, under both mechanisms, the contractor and supplier assume the same ERs. The subsidy mechanism encourages both enterprises to generate additional profits through ER adoption, but yield less environmental benefits than the reward-penalty mechanism. Reward-penalty mechanisms demonstrate superior environmental performance yet impose systemic profit loss, as compliance costs exceed governmental incentives. An adaptive policy framework is introduced, prioritizing reward-penalty mechanism for environmentally critical regions and subsidy mechanism for economically vulnerable areas. This dual approach offers actionable guidance for balancing ecological and economic objectives in modular construction governance.