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Contract and incentive mechanism in low-carbon R&D cooperation

Contract and incentive mechanism in low-carbon R&D cooperation PurposeThis paper focuses on how the producer inspires his cooperative research partner to reduce carbon emission, by developing a menu of incentive contracts both in research and development (R&D) stage and recycling stage.Design/methodology/approachThe proposed mechanism combines the researcher with the producer in a two-staged closed-loop system. Based on the concept that the producer takes the environmental responsibility, this paper designs a dynamically updating contract for the producer to encourage low-carbon efforts. Meanwhile, the producer offers a menu of contracts against the asymmetric information, that is, the R&D partner owns private information on his low-carbon R&D capability. According to incentive mechanism, the researcher decides whether to tell the truth and how much effort she would exert in R&D and recycling stages.FindingsDiscriminating between different types of researchers hurts the producer’s profit. But the updated screening contract can inspire researchers to tell the truth and is beneficial in reducing carbon emissions in the two stages. The results give the optimal solutions of the incentive mechanism. The low-type researcher only obtains reservation profit, whereas the high-type is given more to induce the information.Originality/valueThis paper proposes a strategy of updating the contract factors for avoiding adverse selection and moral hazard. Considering the environmental responsibility of waste products, the producer would like to encourage low-carbon designs among the R&D partners in a closed-loop supply chain. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Supply Chain Management: An International Journal Emerald Publishing

Contract and incentive mechanism in low-carbon R&D cooperation

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1359-8546
DOI
10.1108/SCM-11-2015-0422
Publisher site
See Article on Publisher Site

Abstract

PurposeThis paper focuses on how the producer inspires his cooperative research partner to reduce carbon emission, by developing a menu of incentive contracts both in research and development (R&D) stage and recycling stage.Design/methodology/approachThe proposed mechanism combines the researcher with the producer in a two-staged closed-loop system. Based on the concept that the producer takes the environmental responsibility, this paper designs a dynamically updating contract for the producer to encourage low-carbon efforts. Meanwhile, the producer offers a menu of contracts against the asymmetric information, that is, the R&D partner owns private information on his low-carbon R&D capability. According to incentive mechanism, the researcher decides whether to tell the truth and how much effort she would exert in R&D and recycling stages.FindingsDiscriminating between different types of researchers hurts the producer’s profit. But the updated screening contract can inspire researchers to tell the truth and is beneficial in reducing carbon emissions in the two stages. The results give the optimal solutions of the incentive mechanism. The low-type researcher only obtains reservation profit, whereas the high-type is given more to induce the information.Originality/valueThis paper proposes a strategy of updating the contract factors for avoiding adverse selection and moral hazard. Considering the environmental responsibility of waste products, the producer would like to encourage low-carbon designs among the R&D partners in a closed-loop supply chain.

Journal

Supply Chain Management: An International JournalEmerald Publishing

Published: May 8, 2017

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