R&D Subsidy in the Case of Open Domestic Intermediate Input Market … 29

Chapter 3 The Model

3.4 R&D Subsidy in the Case of Open Domestic Intermediate Input Market … 29

∂

∂SW^AR δ ∂x^AR^*/∂δ <0

3.4 R&D Subsidy in the Case of Open Domestic Intermediate Input Market

Assume that the government open the domestic intermediate input market, the domestic intermediate input manufacture devotes its effort on efficiency R&D employing the subsidy granted from and engage in Cournot competition

with its foreign competitor . The rest settings are the same as section 3.2. The three-stage game is depicted as Fig. 3.4.

ORF

F

At Stage 3, the monopoly final products manufacture decides optimal quantity and price of final products. The setting of Stage 3 is the same as section 3.2. At Stage 2, the domestic and foreign intermediate input manufacturers engage in Cournot competition to decide optimal quantity and price of secondary input

Stage 1

time

G decides δ , τ and f , considering social welfare effect

Fig. 3.4 The three‐stage game of R&D subsidy on domestic Intermediate input

Stage 2 Stage 3

ORD

FI and ^F^I^ORF engage in Cournot competition to decide optimal profits under s and

τ while s can only be used in efficiency R&D

FF decides optimal profit under δ , τ and ^f

The demand function of intermediate input is

ORF I ORD I OR I OR I OR

a f Q Q q q

w

= − −2

δ

, = + (35) Assume that adopts balance budget policy and transfers the entire ARFs to the domestic intermediate input manufacturer as a subsidy of R&D expenses. The objective functions of and are:

ORD

F

_I^ORF

OR I ORD OR

I OR OR

I ORD

I x f Q

q x

ε γ δ

π

= − + − +

) 2 (

(36)

ORF I OR I ORF

I (

w τ

)

q

π

= − (37) Solve Eqs. (36) and (37) simultaneously, obtained

Eq. (40) shows that an increasing of

τ

will boost the level of optimal R&D performance, while the increasing of

f

ε

, δ and

γ

will result in reverse

Eq. (41) states that I can raise its profit by efficiency improvement. From Eqs. (28) and (41), Proposition 3 is concluded as:

F

ORD

Proposition 3: Domestic secondary intermediate input manufacturer may enlarge its profit by engaging in efficiency improvement R&D in both autarky and open market regime.

Compare Proposition 1 and Proposition 3, the two descriptions are almost the same. Yet, Proposition 1 focuses on the domestic secondary intermediate input manufacturer’s willingness to reduce production cost; while Proposition 3 highlights that manufacturer’s ex post efficiency improvement R&D results.

Under the condition of , the optimal price and quantity of final products and profit of are presented as

At Stage 1, the social welfare of domestic country under the open domestic intermediate input market regime with R&D is denoted as

* 2

Comparative static analyses of social welfare with respect to

f

, δ ,

τ

ε

and

Observe Eqs. (44)~(48), if the disposal material disutility is large enough,

>>3

μ , it is easy to notice that , , ,

and . Those results indicate that the increasing of ARFs ( ), the efficiency difference of domestic intermediate input manufacturer (

and R&D effort (γ) will increase the social welfare. While the increasing of tariff rate of imported intermediate input (

τ

), and the percentage of using intermediate input (δ ), will decrease the social welfare.

From the discussion on the effect of governmental disposal material policies on social welfare when the domestic secondary intermediate input manufacturer engages in process efficiency improvement R&D in both autarky and open market regime, the conclusion is summarized as Proposition 4.

Proposition 4: If the disposal material disutility is large enough and the domestic secondary intermediate input manufacturer engages in process efficiency improvement R&D, the effect of governmental disposal material policies on social welfare are:

(1) The higher ARFs the government collects, the higher the social welfare would be in both autarky and open market regime;

(2) The lower percentage of using secondary intermediate input the government regulates, the higher the social welfare would be in both autarky and open market regime;

(3) The more efficient the domestic secondary intermediate input manufacturer is, the less the social welfare would be in both autarky and open market regime;

(4) In open market regime, the lower tariff the government levies on foreign secondary intermediate input importer, the higher the social welfare would be;

(5) If the domestic secondary intermediate input manufacturer has to devote more effort on R&D, the higher the social welfare would be in both autarky and open market regime.

Observe Proposition 3 and Proposition 4 (3), the paradoxical behavior on efficiency attention between the government and the domestic secondary intermediate input manufacturer is still existed in both autarky and open market with R&D regime.

Compare Proposition 2 and Proposition 4, it can be seen that the social welfare effects of governmental recycling policies, including ARFs ( ) and the percentage of using intermediate input (

f

δ ), are the same in both autarky and open market with R&D regime. In addition, the social welfare effects of domestic secondary intermediate input manufacturer’s behaviors are also the same, including the efficiency improvement (

c

_I^AR or

ε

) and the effort devoted in R&D (

γ

) in both autarky and open market with R&D regime.

There are two other findings deserved to be mentioned. First, the social welfare effect of δ is negative in all regimes except in autarky regime (i.e., ,

, , and ). The reason is when the

government regulates higher percentage of using intermediate input will effectively reduce the quantity of final products, and then reduce the amount of disposal materials in the autarky regime. But this effect is diluted by R&D effort and open market policy.

Second, the social welfare effect of

* 0

∂

∂SW^A / δ 0

∂

∂SW^O δ ∂SW^AR^*/∂δ <0 ∂SW^OR^*/∂δ <0

τ

is positive (negative) in the open market (open market with R&D) regime (i.e., , ). The rationale is, in the open market regime, a higher tariff will lessen the quantity of foreign secondary intermediate input and increase the social welfare. While the domestic secondary intermediate input manufacturer engages in cost reduction R&D, a lower tariff will trigger fierce competition between domestic and foreign secondary intermediate input manufacturers and results in social welfare decline.

∂

∂SW^O τ ∂SW^OR^*/∂τ <0

Chapter 4 Conclusion

Environment protection is a critical issue attracting many policy makers’

attention. For protecting the environment from being destroyed, governments and manufacturers have started to make efforts on recycling and effectively use resources in order to reduce their impact on the environment.

For implementing recycling and reducing waste effectively, the government plays a significant role in involving the green supply chain management. Under the consideration of social welfare, the government may encourage final product manufacturers to adopt more secondary intermediate inputs, and set up a feasible incentive mechanism for domestic intermediate input manufacturers to improve their efficiency are important issues.

This paper discusses four scenarios under the consideration of social welfare effects. At first, we discuss the case of autarky, and then discuss the case that the government opens the domestic intermediate input market to foreign intermediate input manufacturers. Finally, governmental R&D subsidy would be included in both above cases.

In both autarky and open market regime, we find that domestic secondary intermediate input manufacturer has the willingness to enlarge its profit by efficiency improvement. If the disposal material disutility is large enough, the effect of governmental disposal material policies on social welfare are: (1) The higher ARFs the government collects, the higher the social welfare would be in both autarky and open market regime; (2) The higher (lower) percentage of using secondary intermediate input the government regulates, the higher the social welfare would be in

autarky (open market) regime; (3) The more efficient the domestic secondary intermediate input manufacturer is, the less the social welfare would be in both autarky and open market regime; (4) In open market regime, the higher tariff the government levies on foreign secondary intermediate input importer, the higher the social welfare would be.

If the domestic secondary intermediate input manufacturer engages in efficiency improvement R&D, its profit would be enlarged in both autarky and open market regime with R&D. In addition, if the disposal material disutility is large enough and the domestic secondary intermediate input manufacturer engages in process efficiency improvement R&D, the effect of governmental disposal material policies on social welfare are: (1) The higher ARFs the government collects, the higher the social welfare would be in both autarky and open market regime; (2) The lower percentage of using secondary intermediate input the government regulates, the higher the social welfare would be in both autarky and open market regime; (3) The more efficient the domestic secondary intermediate input manufacturer is, the less the social welfare would be in both autarky and open market regime; (4) In open market regime, the lower tariff the government levies on foreign secondary intermediate input importer, the higher the social welfare would be; (5) If the domestic secondary intermediate input manufacturer has to devote more effort on R&D, the higher the social welfare would be in both autarky and open market regime.

We discover that the domestic secondary intermediate input manufacturer not only has the ex-ante willingness to reduce production cost but also can create ex post efficiency improvement R&D performance. But there exists the paradoxical behavior on efficiency attention between the government and the domestic secondary intermediate input manufacturer. The domestic secondary intermediate input manufacturer will dedicate to pursue efficiency improvement for raising its own profit while the government is on the opposite side for the consideration of social welfare.

There are two other findings deserved to be mentioned. First, the social welfare effect of the percentage of using secondary intermediate input is negative in all

regimes except in autarky regime. Second, the social welfare effect of tariff is positive (negative) in the open market (open market with R&D) regime.

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在文檔中從社會福利觀點探討政府再生原料政策之效果 (頁 36-52)

R&D Subsidy in the Case of Open Domestic Intermediate Input Market … 29

Chapter 3 The Model

3.4 R&amp;D Subsidy in the Case of Open Domestic Intermediate Input Market … 29

3.4 R&D Subsidy in the Case of Open Domestic Intermediate Input Market

F

a f Q Q q q

w

δ

F

F

ε γ δ

π

w τ

q

π

τ

f

ε

γ

F

Proposition 3: Domestic secondary intermediate input manufacturer may enlarge its profit by engaging in efficiency improvement R&D in both autarky and open market regime.

f

τ

ε

τ

Proposition 4: If the disposal material disutility is large enough and the domestic secondary intermediate input manufacturer engages in process efficiency improvement R&D, the effect of governmental disposal material policies on social welfare are:

(1) The higher ARFs the government collects, the higher the social welfare would be in both autarky and open market regime;

(2) The lower percentage of using secondary intermediate input the government regulates, the higher the social welfare would be in both autarky and open market regime;

(3) The more efficient the domestic secondary intermediate input manufacturer is, the less the social welfare would be in both autarky and open market regime;

(4) In open market regime, the lower tariff the government levies on foreign secondary intermediate input importer, the higher the social welfare would be;

(5) If the domestic secondary intermediate input manufacturer has to devote more effort on R&D, the higher the social welfare would be in both autarky and open market regime.

f

c

ε

γ

τ

Chapter 4 Conclusion

References

Ahi, P. and C. Searcy, (2013), A comparative literature analysis of definitions for green and sustainable supply chain management, Journal of Cleaner Production, 52, 329-341.

Beamon, B. M., (1999), Designing the green supply chain, Logistics information management, 12(4), 332-342.

Bohm, P., (1981), Deposit-refund Systems: Theory and Applications to Environmental, Conservation, and Consumer Policy (No. JHUP-0249/XAB), Resources for the Future, Inc., Washington, DC (United States), Johns Hopkins Univ. Press, Baltimore, MD (United States).

Burby, R. J., (1995), Coercive versus cooperative pollution control: Comparative study of state programs to reduce erosion and sedimentation pollution in urban areas. Environmental Management, 19(3), 359-370.

Chen, C. and L. Q. Liu, (2014), Pricing and quality decisions and financial incentives for sustainable product design with recycled material content under price leadership, International Journal of Production Economics, 147, 666-677.

Colicchia, C. and F. Strozzi, (2012), Supply chain risk management: A new methodology for a systematic literature review, Supply Chain Management: An International Journal, 17(4), 403-418.

d'Aspremont, C. and A. Jacquemin, 1988, Cooperative and noncooperative R&D in duopoly with spillovers, American Economic Review, 78(5), 1133–1137.

Dinan, T. M., (1993), Economic efficiency effects of alternative policies for reducing

waste disposal, Journal of Environmental Economics and Management, 25(3),

242-256.

Di Vita, G., (2001), Technological change, growth and waste recycling, Energy Economics, 23(5), 549-567.

Dobbs, I. M., (1991), Litter and waste management: Disposal taxes versus user charges, Canadian Journal of Economics, 91, 221-227.

Dobos, I. and A. Floriska, (2007), The resource conservation effect of recycling in a dynamic Leontief model, International Journal of Production Economics, 108(1), 334-340.

Fabbe-Costes, N. and M. Jahre, (2007), Supply chain integration improves performance: The emperor's new suit? International Journal of Physical Distribution and Logistics Management, 37(10), 835-855.

Ferrer, G. and D. Whybark, (2001), Material planning for a remanufacturing facility, Production and Operations Management, 10(2), 112-124.

Fleischmann, M., J. M. Bloemhof-Ruwaard, R. Dekker, E. Van der Laan, J. A. E. E.

Van Nunen, and L. N. Van Wassenhove, (1997), Quantitative models for reverse logistics: A review, European Journal of Operational Research, 103(1), 1-17.

Fullerton, D. and T. C. Kinnaman, (1995), Garbage, recycling, and illicit burning or dumping, Journal of Environmental Economics and Management, 29(1), 78-91.

Fullerton, D. and W. Wu, (1998), Policies for green design, Journal of Environmental Economics and Management, 36(2), 131-148.

Ghosh, D. and J. Shah, (2012), A comparative analysis of greening policies across supply chain structures, International Journal of Production Economics, 135(2), 568-583.

Green, K., B. Morton, and S. New, (1996), Purchasing and environmental

Environment, 5, 188-197.

Guide, V. D. R. and L. N. van Wassenhove, (2001), Managing product returns for remanufacturing, Production and Operations Management, 10(2), 142-155.

_______ and _______ , (2002), The reverse supply chain, Harvard Business Review, 18, 25-26.

Haaland, J. I., and H. J. Kind, (2008), R&D policies, trade and process innovation, Journal of International Economics, 74(1), 170-187.

Hassini, E., C. Surti, and C. Searcy, (2012), A literature review and a case study of sustainable supply chains with a focus on metrics, International Journal of Production Economics, 140(1), 69-82.

Hicks, C., O. Heidrich, T. McGovern, and T. Donnelly, (2004), A functional model of supply chains and waste, International Journal of Production Economics, 89(2), 165-174.

Hinloopen, J., (2000), More on subsidizing cooperative and noncooperative R&D in duopoly with spillovers, Journal of Economics, 72(3), 295–308.

Hoejmose, S. U., J. Grosvold, and A. Millington, (2014), The effect of institutional pressure on cooperative and coercive ‘green’ supply chain practices, Journal of Purchasing and Supply Management.

(http//dx.doi.org/10.1016/j.pursup.2014.07.002)

Hong, I., Y.-T. Lee, and P.-Y. Chang, (2014), Socially optimal and fund-balanced advanced recycling fees and subsidies in a competitive forward and reverse supply chain, Resources, Conservation and Recycling, 82, 75-85.

Hotelling, H., (1931), The economics of exhaustible resources, The Journal of

Political Economy, 39, 137-175.

Huhtala, A., (1997), A post-consumer waste management model for determining optimal levels of recycling and landfilling, Environmental and Resource Economics, 10(3), 301-314.

Jain, V., S. Wadhwa, and S. G. Deshmukh, (2009), Select supplier-related issues in modelling a dynamic supply chain: Potential, challenges and direction for future research, International Journal of Production Research, 47(11), 3013-3039.

Kainuma, Y. and N. Tawara, (2006), A multiple attribute utility theory approach to lean and green supply chain management, International Journal of Production Economics, 101(1), 99-108.

Kinnaman, T. C., T. Shinkuma, and M. Yamamoto, (2014), The socially optimal recycling rate: Evidence from Japan, Journal of Environmental Economics and Management, 68(1), 54-70.

Majumder, P. and H. Groenevelt, (2001), Competition in remanufacturing, Production and Operations Management, 10(2), 125-141.

Mirzapour Al-e-hashem, S. M. J. and Y. Rekik, (2013), Multi-product multi-period inventory routing problem with a transshipment option: A green approach, International Journal of Production Economics.

(http//dx.doi.org/10.1016/j.ijpe.2013.09.005)

Palmer, K., H. Sigman, and M. Walls, (1997), The cost of reducing municipal solid waste, Journal of Environmental Economics and Management, 33(2), 128-150.

Palmer, K. and M. Walls, (1997), Optimal policies for solid waste disposal taxes, subsidies, and standards, Journal of Public Economics, 65(2), 193-205.

3.4 R&D Subsidy in the Case of Open Domestic Intermediate Input Market … 29

_ and _ , (2002), The reverse supply chain, Harvard Business Review, 18, 25-26.

Srivastava, S. K., (2007), Green supply chain management: A state of the art literature review, International Journal of Management Reviews, 9(1), 53-80.