A study of closed-loop supply chain models with governmental incentives and fees

A rich mixture of government incentives and fees to encourage the collection of used products and the subsequent remanufacturing has been increasingly utilized both domestically and internationally. In this paper, toward a fuller understanding of such government participation in closed-loop supply chains (CLSC’s), we construct and analyze a series of game-theoretic CLSC models with remanufacturing. Specifically, we investigate a basic decentralized CLSC model, two government participation models of linear incentives and fees as well as of central coordination via alternative financial instruments, and a revenue-sharing contract model without the government participation. We also analyze the impact of competition among manufacturers in our results. A key differentiating feature in our government participation models is the incorporation of the revenue neutrality requirement from a government’s perspective whose financial sources for such incentives must eventually reconcile with the financial sinks for such fees. By comparing and contrasting the equilibrium solutions and the economic consequences of these models, managerial insights and economic implications relevant to academics and practitioners including decision and policy makers are obtained. For example, we show how the government participation can induce an entry or prevent an exit of a CLSC when one or more members are unprofitable.