Socially Responsible Supply Chains and Subsidy Policies

41 Pages Posted: 28 Apr 2023 Last revised: 16 Aug 2023

See all articles by Yongbo Xiao

Yongbo Xiao

School of Economics and Management, Tsinghua University

Xiuyi Zhang

Tsinghua University - School of Economics & Management

Xiaole Wu

Fudan University - School of Management

Date Written: August 16, 2023

Abstract

This paper considers a socially responsible supply chain that consists of a manufacturer and a retailer, who concern their respective profits as well as consumer welfare. Each firm's objective is modelled as a weighted sum of its profit and consumer surplus, with the weight on consumer surplus representing the CSR level of the firm. We first examine a push supply chain where the manufacturer determines the wholesale price and the retailer determines the order quantity. We derive the optimal decisions and investigate the impact of the firms' CSR levels on the interactive decisions of the supply chain members and the overall performance of the supply chain. We show that a higher level of retailer's CSR concern does not necessarily lead to higher consumer surplus because its concern on consumers can be exploited by the manufacturer to improve the profit. The manufacturer's CSR concern may not benefit the retailer's profit, especially when the CSR level is relatively low. Nevertheless, compared to the for-profit supply chain, concern on consumer surplus can be beneficial to both firms' profits as well as consumer surplus, inducing a "win-win-win" situation under certain conditions. Furthermore, as a social planner, the government seeks to optimize social welfare by adopting subsidy policies, and we examine two types of intervention policies, i.e., subsidizing firms and subsidizing consumers. We find that when subsidizing firms, government's quantity-based subsidy is always more cost-effective than sales-based subsidy. As the firms become more socially responsible or the demand uncertainty becomes lower, subsidizing consumers can achieve higher social welfare than subsidizing firms. Finally, we extend the analysis to a pull supply chain to check the robustness of the results.

Keywords: Corporate Social Responsibility, Consumer Surplus, Government Subsidies, Social Welfare, Supply Chain Management

Suggested Citation

Xiao, Yongbo and Zhang, Xiuyi and Wu, Xiaole, Socially Responsible Supply Chains and Subsidy Policies (August 16, 2023). Available at SSRN: https://ssrn.com/abstract=4429758 or http://dx.doi.org/10.2139/ssrn.4429758

Yongbo Xiao

School of Economics and Management, Tsinghua University ( email )

Beijing, 100084
China

Xiuyi Zhang

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Xiaole Wu (Contact Author)

Fudan University - School of Management ( email )

No.670, Guoshun Road
Shanghai, 200433
China

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