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.

Impact of government subsidy on the optimal strategies of improving water use efficiency for a high-water-consumption manufacturer

“…(2017) pointed out that interventions and incentives should center on conservation practices of urban dwellers. Furthermore, for the industrial sector, Chen and Cheung (2021) explored the optimal intervals of internal incentives and government subsidy in a HWC supply chain. Obviously, the above literature reveal that subsidy policies have been a critical driving force behind to achieve the goal of water conservation.…”

“…Second, our research is closely related to Ouyang and Fu (2020), who explored the critical conditions for the manufacturer to choose the optimal resource-saving mode in the energy saving setting, but government subsidy as an important factor affecting water-saving behaviors was not taken into account. Third, unlike Chen and Cheung (2021) and Chen and Wang (2020), who considered a single subsidy policy on water-saving effort, another common subsidy policy on investment cost was studied and compared in this paper. Fourth, in previous studies, different government subsidies have been widely analyzed and compared (e.g.…”

“…They are solutions to crises of water scarcity through rational exploitation, depletion control and optimization of water utilization structure. On the other hand, in the technical aspect, innovative technologies have been envisioned widely among business firms during manufacturing and production processes (Chen and Cheung, 2021), such as water recirculation system, advanced wastewater treatment, high-efficiency cooling techniques, critical process and facilities upgrading as well as seawater desalination and rainwater harvesting. In summary, HWC manufacturers must make their efforts to enhance competitive advantages by carrying out water-saving renovation projects.…”