Implications of government subsidies for waste cooking oil considering asymmetric information
ISSN: 0368-492X
Article publication date: 17 March 2020
Issue publication date: 27 March 2021
Abstract
Purpose
Without proper treatment, waste cooking oil (WCO) will bring serious environmental and health hazards, which can be effectively alleviated by converting it into biofuel. Subsidies from the government usually play a significant role in encouraging recycling activities and supporting sustainable supply chain. This paper aims to quantitatively investigate the incentive effects of government subsidies under asymmetric information.
Design/methodology/approach
This paper applies the principal–agent contract to compare the incentive effects of the two widely used subsidy modes (raw material price subsidy [MS] and finished product sale subsidy [FS]) in a management system which consists of the government and a bio-firm where the bio-firm’s conversion rate of the WCO remains as private information.
Findings
Results indicate that the two subsidy modes have the same performance under symmetric information, while under asymmetric information, the government always prefers the MS mode which is more environment-friendly. Besides, if the average conversion rate is large or the uncertainty level of the asymmetric information is moderate, the MS mode is Pareto-improving compared with the FS mode for the government and the high-type bio-firm. Only when the average conversion rate is small or the uncertainty level is very small/very large, the high-type bio-firm welcomes the FS mode.
Originality/value
Different from the existing literature, this paper applies the principal–agent contract into the WCO management system and quantitatively compares the two subsidy modes taking the practical problem of asymmetric information into consideration.
Keywords
Acknowledgements
This work was supported by National Natural Foundation of China No. 71771164 and No. 71971152.
Citation
Yang, R., Tang, W. and Zhang, J. (2021), "Implications of government subsidies for waste cooking oil considering asymmetric information", Kybernetes, Vol. 50 No. 2, pp. 588-615. https://doi.org/10.1108/K-10-2019-0708
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited