The Reward-Penalty Mechanism in a Closed-Loop Supply Chain with Asymmetric Information of the Third-Party Collector

Abstract

This paper investigates the reward-penalty mechanism (RPM) implemented by the government in a closed-loop supply chain (CLSC) with asymmetric information. The manufacturer produces and sells products to consumers, while the collection of waste electrical and electronic equipment (WEEE) is delegated to the third-party collector, the one who has private information about the collection effort level. An information screening contract for the manufacturer is put forward to obtain the private information from the third-party collector, which is composed of buy-back price and franchise fee. By utilizing principal-agent theory, two cases are mainly examined including the CLSC without the RPM and the CLSC with the RPM. The results demonstrate that (i) the information screening contract is effective in capturing the collector's collection effort level, (ii) raising the buy-back price to motivate the third-party collector is confirmed to perform well on enhancing the collection quantity from consumers, (iii) H-type collector collects more WEEEs and earns more profits than L-type collector, and (iv) the RPM improves the collection quantity of the enterprise and reaps more environmental benefits. The numerical results verify the validity of the contract and the feasibility of the RPM.