The Impact of Demand Uncertainty on Consumer Subsidies for Green Technology Adoption
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-settin...
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| Other Authors: | |
| Format: | Article |
| Language: | en_US |
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Institute for Operations Research and the Management Sciences (INFORMS)
2017
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| Online Access: | http://hdl.handle.net/1721.1/111095 https://orcid.org/0000-0002-9428-7748 https://orcid.org/0000-0002-0888-9030 |
| _version_ | 1826189926899646464 |
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| author | Lobel, Ruben Cohen, Maxime Perakis, Georgia |
| author2 | Massachusetts Institute of Technology. Operations Research Center |
| author_facet | Massachusetts Institute of Technology. Operations Research Center Lobel, Ruben Cohen, Maxime Perakis, Georgia |
| author_sort | Lobel, Ruben |
| collection | MIT |
| description | 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. |
| first_indexed | 2024-09-23T08:30:18Z |
| format | Article |
| id | mit-1721.1/111095 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T08:30:18Z |
| publishDate | 2017 |
| publisher | Institute for Operations Research and the Management Sciences (INFORMS) |
| record_format | dspace |
| spelling | mit-1721.1/1110952022-09-30T09:26:14Z The Impact of Demand Uncertainty on Consumer Subsidies for Green Technology Adoption Lobel, Ruben Cohen, Maxime Perakis, Georgia Massachusetts Institute of Technology. Operations Research Center Sloan School of Management Cohen, Maxime Perakis, Georgia 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. 2017-09-01T13:01:33Z 2017-09-01T13:01:33Z 2015-09 2014-01 Article http://purl.org/eprint/type/JournalArticle 0025-1909 1526-5501 http://hdl.handle.net/1721.1/111095 Cohen, Maxime C. et al. “The Impact of Demand Uncertainty on Consumer Subsidies for Green Technology Adoption.” Management Science 62, 5 (May 2016): 1235–1258 © 2016 Institute for Operations Research and the Management Sciences (INFORMS) https://orcid.org/0000-0002-9428-7748 https://orcid.org/0000-0002-0888-9030 en_US http://dx.doi.org/10.1287/mnsc.2015.2173 Management Science Creative Commons Attribution-Noncommercial-Share Alike http://creativecommons.org/licenses/by-nc-sa/4.0/ application/pdf Institute for Operations Research and the Management Sciences (INFORMS) Prof. Perakis via Shikha Sharma |
| spellingShingle | Lobel, Ruben Cohen, Maxime Perakis, Georgia The Impact of Demand Uncertainty on Consumer Subsidies for Green Technology Adoption |
| title | The Impact of Demand Uncertainty on Consumer Subsidies for Green Technology Adoption |
| title_full | The Impact of Demand Uncertainty on Consumer Subsidies for Green Technology Adoption |
| title_fullStr | The Impact of Demand Uncertainty on Consumer Subsidies for Green Technology Adoption |
| title_full_unstemmed | The Impact of Demand Uncertainty on Consumer Subsidies for Green Technology Adoption |
| title_short | The Impact of Demand Uncertainty on Consumer Subsidies for Green Technology Adoption |
| title_sort | impact of demand uncertainty on consumer subsidies for green technology adoption |
| url | http://hdl.handle.net/1721.1/111095 https://orcid.org/0000-0002-9428-7748 https://orcid.org/0000-0002-0888-9030 |
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