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      Implications of government subsidies for waste cooking oil considering asymmetric information

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      Kybernetes

      Emerald

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          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.

          Related collections

          Most cited references 41

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          Closed-Loop Supply Chain Models with Product Remanufacturing

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            An overview of biofuel policies across the world

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              Designing Supply Contracts: Contract Type and Information Asymmetry

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                Author and article information

                Journal
                Kybernetes
                K
                Emerald
                0368-492X
                0368-492X
                March 19 2020
                March 19 2020
                : ahead-of-print
                : ahead-of-print
                Article
                10.1108/K-10-2019-0708
                © 2020

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