Government Interventions to Improve Product Greenness in the Transportation Sector

Abstract

Motivated by the increasing importance of green production in low carbon economy, this study investigates the role of government interventions in the transportation sector to increase product greenness. We contribute to existing studies by considering the government's roles in subsidizing and regulating interventions and analyzing how the government interventions affect consumer surplus, manufacturer profit, and social welfare. To this end, we classify green products into development-intensive green products (DIGPs) and marginal-cost-intensive green products (MIGPs) and compare the effectiveness of three common government interventions inspiring green production: subsidizing, regulating, and hybrid interventions. Results show that for DIGPs and MIGPs, consumers, manufacturers, and the government prefer the hybrid intervention. That is, the hybrid intervention is a win–win–win solution for DIGPs and MIGPs. To cater for the possibility of a limited government budget, we investigate whether the government's optimal choice will change when green budget is less than the corresponding investment of the hybrid intervention in equilibrium. We confirm the necessity of the consideration for the amount of green budget when the government establishes environmental interventions. Our results provide managerial insights for government regulators that attempt to increase product greenness for sustainable economic growth.

Keywords: Product greenness, Government intervention, Transportation sector, Environmental investment, Game theory