Deal or no deal on water‐saving program? Exploring the optimal interval for government subsidies and internal incentives

Abstract

Water resources can be soon exhausted with the overdeveloped industrialization. High-water-consumption (HWC) industries and their supply chains are trying to reduce water consumption in the production process. These water-saving behaviors and effects may be subsidized by the government to pursue the goal of social welfare maximization (SWM). In this context, to investigate when to bring in government subsidy for any water-saving behaviors and effects to maximize the social welfare, six game-theoretical decision models for the water-saving supply chain under three scenarios are developed, analyzed, and compared, and the corresponding numerical and sensitivity analyses of water-saving case in the papermaking industry are conducted and compared; on this basis, the corresponding policy implications and managerial insights are discussed and summarized in this article. The research results indicate that the supply chain would only have internal incentive to implement water-saving management under low- or medium-cost case, while the government would only have external incentive to subsidize water-saving behaviors and effects under medium-cost case. Besides, the coordination strategy outperforms the equilibrium strategy regarding the water-saving effects, operational performances, social welfare, consumer surplus, and positive externality for the water-saving supply chain under all three scenarios. Furthermore, a kind of niche targeting subsidy policy based on actual water-saving effect that the government only subsidizes the water-saving supply chain operating under coordination strategy with medium water-saving cost structure can achieve social welfare maximization, operational performance improvement, and positive externality enhancement. PRACTITIONER POINTS: The optimal interval for internal incentives of water-saving is explored. The optimal interval for government subsidies of water-saving is investigated. The optimal operational strategy for the water-saving supply chain is examined.

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