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Social welfare maximization with the least subsidy: Photovoltaic supply chain equilibrium and coordination with fairness concern

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Publication date: March 2019

Source: Renewable Energy, Volume 132

Author(s): Zhisong Chen, Shong-Iee Ivan Su

Abstract

This study attempts to fill the literature gaps in the PV supply chain studies to understand better the effective equilibrium and coordination mechanisms in a PV supply chain with the fairness concern under the government subsidy policy and how an optimal subsidy factor is determined to achieve the social welfare maximization goal. Considering the government subsidy and the fairness concern of the core supply chain members, four basic game-theoretical model types (i.e. MS-leader Stackelberg Game, PA-leader Stackelberg Game, Nash Game and Revenue Sharing Contract) are formulated to study and compare the effects on the solutions and the performances by undertaking either an equilibrium or a coordination supply chain strategy. A total of 16 models are developed for the analytical and numerical studies with the findings and results complementing each other. It is found that a conflicting goal exists between the public sector and the private sector to develop a larger and healthier PV industry. A coordinated supply chain, theoretically, would perform better than an equilibrium supply chain since a coordination strategy in a PV supply chain allows the maximization of the social welfare using the least public subsidy and, simultaneously, generates many more supply chain profits for the PV supply chain comparing to the profits earned by those supply chain strategies without any subsidy. Smart and proper policies to resolve the conflict between the public and the private sectors are still very deficient and need more practical investigations.

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