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

Abstract

Purpose In order to encourage the high-water-consumption (HWC) manufacturers to carry out water-saving transformation relying on self-strength or outsourcing to a water-saving service company (WSSC) during production processes, government subsidies are provided according to water-saving efforts (WSE) or investment cost. In this context, the authors derive the participant's equilibrium decisions and the manufacturer's water-saving strategy. Additionally, the effects of subsidies on WSE and stakeholders' profits are discussed. Design/methodology/approach Mathematical models including optimization model and Stackelberg game model are constructed under different subsidy schemes. Findings The study finds that (1) there exists a threshold related to the subsidy coefficient for the HWC manufacturer when choosing between self-saving and outsourcing-saving. (2) When the technological competitive advantage between WSSC and manufacturer is within a certain range, government's subsidy promotes HWC enterprises to choose outsourcing-saving. (3) Given a water-saving mode, subsidy on investment cost is more effective for the government to achieve more environmental performance. Research limitations/implications First, subsidy endogeneity can be considered to explore the optimal interval for government subsidies to maximize social welfare. Second, in outsourcing-saving, other types of contract can be discussed. Another extension is about model uncertainties. Finally, other policies on improving water efficiency can be also examined. Practical implications The paper includes implication for HWC manufacturers to select the best water-saving mode under subsidy, and it allows policymakers to understand the efficiency of proposed subsidies. Originality/value Decisions on water-saving efforts, selection of water-saving modes and operational planning are also regarded as business strategies in the paper. Particularly, the influences of different government subsidies are also considered and compared.