Optimal subsidies for green products: A maximal policy benefit perspective

Abstract

Replacing traditional products with green products has become a key way to achieve decoupling between economic development and environmental pollution. As an incentive mechanism, subsidies can be provided by a government to facilitate the popularization and acceptance of green products. Subsidies play a significant role in encouraging the development of green products. We explored the proper optimal subsidy mechanism for green products from the angle of maximizing the net policy return, which cannot only encourage the development of green products but also do not aggravate financial burden for the government. In order to explore the optimal subsidy level for green products from the perspective of net policy benefit maximization, this paper established the optimal subsidy principal-agent models and a numerical example was presented to verify the effectiveness of the model we constructed. The results show that improving investors' preference and eliminating asymmetric information contribute to reduce subsidy cost savings. Additionally, improving consumer environmental awareness, promoting the development and application of green technology, and reducing market risk reduce subsidy costs. This article provides policymakers with an effective subsidy scheme to accelerate the development of green products and achieve sustainable development goals.