Cost-based subsidy and performance-based subsidy in a manufacturing-recycling system considering product eco-design.

Using the Stackelberg game theory, this paper evaluates the effectiveness of four subsidy schemes on the product eco-design and recycling rate in a manufacturing–recycling system that comprises a government, a manufacturer and a recycler. The principal results are: 1) For the cost-based subsidies, a fixed-cost subsidy to recyclers always yields higher recycling rate and social welfare. For the performance-based subsidies, the effects are closely related to market demand and the fixed cost coefficients of eco-design and recycling. Governments should select subsidy schemes according to the specific goals and market conditions. 2) Four subsidy schemes are the effective forces to promote product eco-design and recycling. Higher subsidy intensity brings better supply chain profits and better environment performance, but it does not always bring better social welfare. 3) Eco-design can increase waste recycling rates effectively, and recycling rates are more sensitive to eco-design when the government subsidizes the fixed costs of recyclers. [Display omitted] • Two cost-based subsidies and two performance-based subsidies are considered. • Government subsidy is useful to promote product eco-design and recycling. • For cost-based subsidy, government can prioritize recycler fixed cost subsidy. • For performance-based subsidy, government can adjust scheme with varied conditions. [ABSTRACT FROM AUTHOR]