Financing decision for an emission-dependent supply chain with capital constraints

In this paper, we study the financing decision for an emission-dependent supply chain with one supplier and one manufacturer, both of which are financially constrained and in need of short-term financing for emission abatement. Three kinds of financing strategies are considered: (1) bank financing separately (BFS), (2) the manufacturer obtains partial loans from the bank, and borrows from the supplier (MPB), (3) the supplier obtains partial loans from the bank, and borrows from the manufacturer (SPB). The BFS is viewed as a noncollaborative financing strategy, and the MPB and SPB are collaborative financing strategies. The financing strategies are obtained at the point where wholesale price, production quantity, and emission reduction are endogenously determined. We found that the collaborative financing strategy is beneficial to the supplier and the whole supply chain compared with the noncollaborative financing strategy, the SPB strategy may outperform the MPB strategy for the supplier and the whole supply chain, depending on sharing proportion. The advantage of the MPB and SPB strategies relative to the BFS strategy mainly depends on sharing proportion from the manufacturer's perspective. We demonstrated that the collaborative financing strategy is the equilibrium strategy of the emission-dependent supply chain under certain conditions.