Joint Decisions on Emission Reduction and Inventory Replenishment with Overconfidence and Low-Carbon Preference

This paper presents a game-theoretical analysis of joint decisions on carbon emission reduction and inventory replenishment with overconfidence and consumer's low-carbon preference for key supply chain players when facing effort-dependent demand. We consider respectively the overconfidence of a supplier who overestimates the impacts of his emission reduction efforts on product demand and the overconfidence of a retailer who underestimates the variability of the stochastic demand. We find, surprisingly, that the supplier's overconfidence can mitigate "double marginalization" but hurt self-profit, while the retailer's overconfidence can be an irrelevant factor for self-profit. The retailer aiming at short-term trading should actively seek an overconfident supplier, while the supplier should actively seek a rational retailer for whom the critical fractile is more than 0.5, whereas for an overconfident retailer, the critical fractile is less than or equal to 0.5. The study also underlines the effect of regulation parameters as an important contextual factor influencing low-carbon operations.