Game theory meets circular economy and sustainability: Bargaining game range adjusted measure unleashed

The depletion of resources and environmental degradation has underscored the need for sustainable resource use and global environmental protection. Consequently, countries worldwide aim to develop circular economies that achieve economic and environmental sustainability. In this context, setting production goals for a circular economy, which integrates production and recycling systems, becomes crucial. To address this challenge, we propose a novel approach that combines the bargaining game (BG) theory with the data envelopment analysis (DEA). First, using leader-follower analysis from BG theory, we introduce the range-adjusted measure (RAM) models to establish production goals in situations where competition exists between production and recycling stages. Next, based on the results obtained from the leader-follower models, we determine the maximum and minimum efficiency for each stage. Subsequently, we apply BG theory to create a RAM-DEA model called BGRAM-DEA. This model generates coordinated targets by considering the maximum and minimum efficiency of each stage. Importantly, the proposed BGRAM-DEA model effectively handles desirable and undesirable outputs, negative data, and properties such as translation invariance, unit invariance, and projection. To validate our methodology, we conduct a sustainability assessment for the production-recycling system in 28 EU countries under three different scenarios. Finally, we discuss strategies for improving sustainability in production-recycling systems with weak performance.