The Impact of Demand Uncertainty on Consumer Subsidies for Green Technology Adoption

By Maxime C. Cohen, Ruben Lobel, Georgia Perakis. Management Sciences, 2016

520 citations recorded by the source corpus.

This paper studies government subsidies for green technology adoption while considering the manufacturing industry’s response. Government subsidies offered directly to consumers impact the supplier’s production and pricing decisions. Our analysis expands the current understanding of the price-setting newsvendor model, incorporating the external influence from the government, who is now an additional player in the system. We quantify how demand uncertainty impacts the various players (government, industry, and consumers) when designing policies. We further show that, for convex demand functions, an increase in demand uncertainty leads to higher production quantities and lower prices, resulting in lower profits for the supplier. With this in mind, one could expect consumer surplus to increase with uncertainty. In fact, we show that this is not always the case and that the uncertainty impact on consumer surplus depends on the trade-off between lower prices and the possibility of underserving customers with high valuations. We also show that when policy makers such as governments ignore demand uncertainty when designing consumer subsidies, they can significantly miss the desired adoption target level. From a coordination perspective, we demonstrate that the decentralized decisions are also optimal for a central planner managing jointly the supplier and the government. As a result, subsidies provide a coordination mechanism. This paper was accepted by Yossi Aviv, operations management .

Subfields: Management Information Systems, Renewable Energy, Sustainability and the Environment, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/57f253d80d0916c4da298d523188cf0d3132938f

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Management Information Systems

1. Qiankai Qing
2. Hua-ying Gu
3. Zhixue Liu
4. Hubert Pun

In Renewable Energy, Sustainability and the Environment

1. Qiankai Qing
2. Hua-ying Gu
3. Zhixue Liu

In Strategy and Management

1. Qiankai Qing
2. Hua-ying Gu
3. Stanko Dimitrov
4. Jen-Yi Chen
5. Zhixue Liu
6. Hubert Pun

Citations in the corpus

• The impact of government subsidy on supply Chains’ sustainability innovation (2019, background): “Cohen et al. (2016) study how demand uncertainty impacts green technology adoption and a manufacturer’s production and pricing decisions when designing per-unit government subsidies directly to end consumers. To further understand the effect of government subsidy policies on vertical collaboration (”
• Optimal electric vehicle production strategy under subsidy and battery recycling (2017, methodology): “The newsvendor model, which was pioneered by Edgeworth (1888), has been extensively studied in the literature (Babich, 2010; Cohen et al., 2016; Krass et al., 2013; Qin et al., 2011).”