Impacts of government and market on firm’s efforts to reduce pollution

Abstract

We examine how the government and the market affect firm’s pollution abatement efforts, i.e. firm’s efforts to reduce its pollution emission. The way for the government to control firm’s pollution is to impose penalty, whereas the consumers (the market) make their purchasing decision by taking into account the pollution, i.e. the demand is affected by the stock of pollution. In effect, we consider two forces, government penalty and consumer’s sensitivity to pollution, as primary factors to control firm’s pollution and analyze their interaction in relation to the firm’s pollution reduction efforts. The analysis suggests as follows. The government penalty and the consumer’s awareness are substitutes either (1) when the market size is relatively large or (2) when the market is relatively small, but the government penalty is relatively heavy. On the contrary, the two factors are complements when the market size is relatively small and the government penalty is relatively light. We discuss managerial and economic implications of the analysis results.

Keywords:

• pollution reduction
• government penalty
• consumer awareness

Public Interest Statement

The authors’ research interests are in subjects such as supply chain management, operations strategy, and new product innovation. Currently, they are more actively involved in studying issues related to green or sustainable supply chain management. In particular, their focus is on the roles played by key stakeholders in the economy: as an integral part of the ongoing research outlined above, this paper examines two important stakeholders, i.e. government and consumer, simultaneously. In essence, the authors analyze the firm’s environmental strategy, which helps the firm to maximize its profit by taking into account the dynamic interaction between the two stakeholders and its own efforts to reduce pollution emission. This paper plays an important role in establishing a research framework, upon which the authors build up a series of research papers, deriving significant managerial as well as economic implications.

Additional information

Funding

Funding. The authors received no direct funding for this research.

Notes on contributors

Bowon Kim

Bowon Kim is a professor of Operations Strategy and Management Science (OSMS) at KAIST Business School in Seoul, Korea. He earned Doctor of Business Administration (Technology and Operations Management) from Harvard (1995) and Master of Science in Operations Research from Stanford (1989). He joined the KAIST faculty in 1996. His research interests are in supply chain management and new product innovation. The revision of his book “Supply Chain Management” originally published by John Wiley & Sons in 2005 is to be published by Cambridge University Press in 2017.

Jeong Eun Sim

Jeong Eun Sim is a doctoral candidate in OSMS at KAIST Business School. Her research interests include supply chain coordination and sustainable operations. Professor Kim and Ms. Sim are working on sustainable supply chain management, e.g. how supply chain structure and strategy affect firm’s efforts to reduce pollution emission, which is closely related to the topic in the current paper.