Investigating the effect of government subsidies on end-of-life vehicle recycling

Abstract

To have a deeper understanding of the Chinese market reaction for different subsidy policies made by the government, we establish a game model of the competition between legal recyclers and illegal recyclers with government involved. Further, we consider the quality differentiation of end-of-life vehicles in every player’s decision-making. With a numerical simulation, the researchers validated this study. Based on the results of this research, we found that compared with the strategy of subsidizing the legal recyclers, subsidizing the end-of-life vehicle owners is more effective, and the legal recyclers would get more business from end-of-life vehicle owners. The quality of end-of-life vehicles plays a vital role when the recyclers make decisions on their recycling behaviour. Moreover, the differential subsidy policy will probably be useless if most of the end-of-life vehicles in the market are in poor quality. So, the Chinese government should adjust its policies on end-of-life vehicle market development based on the quality distribution of end-of-life vehicles, and the quality management should be implemented in the end-of-life vehicle supply chain for the efficiency and effectiveness of subsidy policies.