Financing strategy for industrial symbiosis chains with a capital-constrained upstream manufacturer considering by-product supply-demand mismatch

As a subfield of the circular economy, industrial symbiosis has rapidly emerged as a development mode that efficiently utilizes waste resources and reduces environmental pollution. However, challenges in industrial cooperation and inadequate corporate financing support have hindered its development. We consider an industrial symbiosis chain consisting of a capital-constrained upstream manufacturer and a downstream manufacturer, where the latter can reuse the upstream manufacturer’s by-product to replace raw materials for production. We analyze purchase order financing as pre-shipment financing and factoring as post-shipment financing, while also considering buyer direct financing as an alternative pre-shipment financing method and purchase commitment as a specific type of smart contract. Given the uncertainty in market demands and the mismatch between the supply and demand of by-products, we develop a two-stage game theoretical model to analyze firms’ production decisions and explore the role of different financing modes. In addition, we examine information friction in both financing and symbiotic aspects and investigate the value of smart contracts within the industrial symbiosis chain. Furthermore, we extend our study to utilize Pigouvian taxation to internalize environmental pollution externalities. This innovation in the financing mode of the industrial symbiotic chain provides theoretical support for supply chain finance aimed at promoting industrial symbiosis and enhancing industrial cooperation through the adoption of smart contracts.