Supply Chain Consequences of Subsidies for Corporate Social Responsibility

Abstract

The use of government incentives tied to market prices as means of boosting corporate social responsibility (CSR) has expanded notably in recent decades. Enhanced business tax deductions for charitable donations and credits for conservation easements are notable cases. While providing incentives for socially desirable behavior to achieve legislative goals has intuitive appeal, the broader economic consequences are not always fully understood. In this study, we examine such wider consequences for supply chains when subsidies for CSR are offered. One effect we identify is that since incentives are typically tied to market value, firms have not only an added incentive to achieve societal objectives (say by donating inventory) but also an incentive to raise output (retail) market prices. A second consequence is that since firms forgo potential revenues by engaging in socially desired behavior, they become increasingly sensitive to supplier pricing; in an uncoordinated supply chain this leads to input (wholesale) price concessions. Among other things, the results underscore that incentives put in place to meet broader societal objectives also have notable ramifications for suppliers, retailers, and consumers in primary markets.

The Effect of Introducing Upgraded Remanufacturing Strategy on OEM’s Decision

“…Although Zhu et al [44] consider the donation of remanufactured products, they do not take the remanufacturing constraints and multiple periods into account. Arya and Mittendorf [20] study the impacts of the donation subsidy on suppliers, manufacturers, and retailers, and suggest that direct donation subsidy and indirect tax breaks have the same incentive effects. Instead, this paper incorporates the donation of remanufactured products into CLSC and considers the two-period and remanufacturing constraints.…”

“…Particularly, enterprises in China are used to establish a good political relationship with the government by charitable donations. Arya and Mittendorf [20] explore the interactions with suppliers, manufacturers and retailers when manufacturers implement charitable donations and analyze the significant impact of the government subsidy on the channel members. The above literature reviews only take the donation of new product into account.…”

“…Recently, Chapter IX of China's new Charity Law allows for charitable donations to be deducted from taxable income (http://www.chinalawtranslate.com/2016charitylaw/?lang=en). Arya and Mitterndorf [20] put forward a direct subsidy for product donation and demonstrate that it has the same legislative efficiency as the indirect subsidy (the tax deduction) does. It is necessary to design an incentive policy that incorporates the donation to realize the value of remanufactured products.…”

“…One common motivation is to provide subsidies, including direct or indirect subsidies, for activities that are consistent with policy objectives. In the United States, the 1976 tax provision by Congress allows big companies to avail up to twice the tax deduction they normally receive if they donate goods to charity instead of discarding them [20]. Recently, Chapter IX of China's new Charity Law allows for charitable donations to be deducted from taxable income (http://www.chinalawtranslate.com/2016charitylaw/?lang=en).…”

“…Thus, it is worth to study how to reduce EOL Sustainability 2018, 10, 828 3 of 21 The charitable donation improves social welfare and eases the pressure on governments, thus all the governments around the world encourage enterprises to implement charitable donations [19]. Governmental efforts to direct business behavior toward certain socially desirable outcomes take a variety of forms [20]. One common motivation is to provide subsidies, including direct or indirect subsidies, for activities that are consistent with policy objectives.…”