Contracting with asymmetric information under government subsidy programmes in a bioenergy supply chain

Abstract

This paper investigates the government subsidy programmes for a bioenergy supply chain composed of a power plant and farmers who privately know their quality information of bioenergy. The government offers two types of subsidy programmes to increase the supply of bioenergy: Agriculture Quantity Coverage (AQC) programme that pays the farmers subsidies based on the quantity of bioenergy, and Price Loss Coverage (PLC) programme that is triggered when the market price of bioenergy falls below a reference price. With AQC programme, when the quantity of bioenergy is large, farmers may get more subsidies but the wholesale price of bioenergy would decrease, thus hurting the farmers' payoffs. By contrast, with PLC programme, the farmers can get more subsidies with a lower wholesale price, which also undermines the farmers' profitability. In equilibrium, the government prefers the AQC programme when the cost of the non-bioenergy is high, or the cost of the non-bioenergy is low and the government's subsidy payment coefficient in the PLC programme is high. Moreover, social welfare is higher with the PLC programme than that with the AQC programme when the cost of the non-bioenergy is high and the subsidy payment coefficient is low, and is lower otherwise.

Keywords:

• Supply chain modelling
• government subsidy
• asymmetric information
• bioenergy
• game theory

Acknowledgments

The authors are grateful to the associate editor and the referees for their constructive comments.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This work is supported by the National Natural Science Foundation of China (Grant Numbers 71671033, 71971052), the Fundamental Research Funds for the Central Universities (Grant Number N2006006), the Project of Promoting Talents in Liaoning Province (Grant Number XLYC1807252), the Major Program of National Natural Science Foundation of China (Grant Number 71790614) and the 111 Project (B16009). The corresponding author, Song Huang, is supported by the National Natural Science Foundation of China (Grant Number 71772070).

Notes on contributors

Zhong-Zhong Jiang

Zhong-Zhong Jiang is a professor in Management Science and Engineering and the Dean of the School of Business Administration, and the Director of Institute of Behavioural and Service Operations Management, Northeastern University, Shenyang, China. He was a senior research associate with the Hong Kong Polytechnic University and North Carolina State University, Raleigh, NC, USA, and a visiting professor with the University of Minnesota, Minneapolis, USA. His current research interests include behavioural and service operations management, logistics and supply chain optimisation. He has published academic papers in Manufacturing & Service Operations Management, Naval Research Logistics, Transportation Research Part B, Decision Support Systems, European Journal of Operational Research, Annals of Operations Research, Omega, Transportation Research Part E, Computers and Operations Research and IEEE Transactions Engineering Management.

Na He

Na He is a Ph.D. candidate at the School of Business Administration, Northeastern University, Shenyang, China. She received her B.A. degree in marketing from Northeast Forestry University, Harbin, China, in 2015. Her research interests include supply chain optimisation and behavioural operations. She has published academic papers in some journals, such as Annals of Operations Research, IEEE Transactions on Engineering Management and Enterprise Information Systems.

Song Huang

Song Huang is a professor in Management Science and Engineering at South China Agricultural University. He received his Ph.D. degree from Management Science and Engineering from Huazhong University of Science and Technology. His research interests include information asymmetry and channel structure, incentives in operations management, interface between operations and marketing. He has published academic papers in Production and Operations Management, Omega, International Journal of Production Economics, Computers & Industrial Engineering, Operations Research Letters, Annals of OperationsResearch.