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The choice of the government green subsidy scheme: innovation subsidy vs. product subsidy

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  • Yina Li
  • Yang Tong
  • Fei Ye
  • Jiajia Song

Abstract

A critical problem that beleaguers governments in the promotion of green development is determining which approach to employ in establishing an efficient green subsidy scheme. In this study, we scrutinise the effects of three government subsidy schemes: a green non-subsidy (GNS), a green product subsidy (GPS), and a green innovation subsidy (GIS). Taking social welfare into consideration, the optimal green subsidy scheme of governments in different settings is investigated. Interestingly, we find that a green subsidy is not always a good choice for the government. When the cost of green innovation is particularly low, or when both the cost of green innovation and the variable production cost of green product are high, if the environmental improvement effectiveness yielded by green innovation is insignificant, the GNS is the best. Otherwise, both the GPS and the GIS achieve greater levels of social welfare. In addition, counter to intuition, the GPS outperforms the GIS when the cost of green innovation is sufficiently high and green innovation reduces the variable production cost of green product significantly, even if the GIS can directly help to lighten the green innovation cost load. However, from the perspective of maximising subsidy efficiency, the GIS is always better than the GPS.

Suggested Citation

  • Yina Li & Yang Tong & Fei Ye & Jiajia Song, 2020. "The choice of the government green subsidy scheme: innovation subsidy vs. product subsidy," International Journal of Production Research, Taylor & Francis Journals, vol. 58(16), pages 4932-4946, July.
    • Handle: RePEc:taf:tprsxx:v:58:y:2020:i:16:p:4932-4946
    DOI: 10.1080/00207543.2020.1730466
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    Cited by:

    1. Li Liu & Zhe Wang & Zhao Song & Zaisheng Zhang, 2023. "Evolutionary game analysis on behavioral strategies of four participants in green technology innovation system," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(2), pages 960-977, March.
    2. Die Hu & Lu Qiu & Maoyan She & Yu Wang, 2021. "Sustaining the sustainable development: How do firms turn government green subsidies into financial performance through green innovation?," Business Strategy and the Environment, Wiley Blackwell, vol. 30(5), pages 2271-2292, July.
    3. Han, Xiaoya & Khouja, Moutaz & Liu, Xin, 2023. "A dynamic model considering consumer green awareness and environmental subsidy," International Journal of Production Economics, Elsevier, vol. 260(C).
    4. Song, Yang & Zhang, Zhiyuan & Sahut, Jean-Michel & Rubin, Ofir, 2023. "Incentivizing green technology innovation to confront sustainable development," Technovation, Elsevier, vol. 126(C).
    5. Junjian Wu & Jennifer Shang, 2021. "Optimal Green Operation and Information Leakage Decisions under Government Subsidy and Supply Uncertainty," Sustainability, MDPI, vol. 13(24), pages 1-19, December.
    6. Jian Cao & Jiayun Zeng & Yuting Yan & Xihui Chen, 2020. "Research on an Enterprise Remanufacturing Strategy Based on Government Intervention," Energies, MDPI, vol. 13(24), pages 1-27, December.
    7. Jun Wen & Lingxiao Li & Xinxin Zhao & Chenyang Jiao & Wenjie Li, 2022. "How Government Size Expansion Can Affect Green Innovation—An Empirical Analysis of Data on Cross-Country Green Patent Filings," IJERPH, MDPI, vol. 19(12), pages 1-22, June.
    8. Yu, Yi & Zhou, Dequn & Zha, Donglan & Wang, Qunwei & Zhu, Qingyuan, 2021. "Optimal production and pricing strategies in auto supply chain when dual credit policy is substituted for subsidy policy," Energy, Elsevier, vol. 226(C).
    9. Jingpei Ma & Xuejun Sun, 2023. "Green technology licensing: Evaluating government subsidies based on different efficiency levels across competitors," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(4), pages 1920-1934, June.
    10. Zhong, Yuanguang & Yang, Tong & Yu, Huilin & Zhong, Shuneng & Xie, Wei, 2023. "Impacts of blockchain technology with government subsidies on a dual-channel supply chain for tracing product information," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 171(C).
    11. Junjian Wu & Jennifer Shang, 2021. "Green Credit Financing Equilibrium under Government Subsidy and Supply Uncertainty," Sustainability, MDPI, vol. 13(22), pages 1-22, November.
    12. Zolfagharinia, Hossein & Zangiabadi, Maryam & Hafezi, Maryam, 2023. "How much is enough? Government subsidies in supporting green product development," European Journal of Operational Research, Elsevier, vol. 309(3), pages 1316-1333.
    13. Fang, Lei & Zhao, Sai, 2023. "On the green subsidies in a differentiated market," International Journal of Production Economics, Elsevier, vol. 257(C).
    14. Li, Yina & Liang, Chenchen & Ye, Fei & Zhao, Xiande, 2023. "Designing government subsidy schemes to promote the electric vehicle industry: A system dynamics model perspective," Transportation Research Part A: Policy and Practice, Elsevier, vol. 167(C).
    15. Liu, Peide & Li, Xina & Li, Jialu, 2023. "Competitive firms’ low-carbon technology diffusion under pollution regulations: A network-based evolutionary analysis," Energy, Elsevier, vol. 282(C).

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