Impact of Green Credit Policy on Manufacturer’s Efforts for Supplier’s Pollution Reduction

With green credit policy in South Korea, the manufacturer can benefit from reducing the supplier’s pollution. In order to explore the optimal level of pollution reduction for the manufacturer, we set up an optimal control model that includes the green credits and consumer environmental awareness. By using this model, we find the optimal level and investigate the impact of green credit policy on the manufacturer’s efforts to reduce pollution from suppliers. In order to demonstrate the feasibility of our model, we illustrate numerical analyses. The results suggest that aid to the cost of reducing pollution is more effective than compensation. Furthermore, we find that the larger the pollution reduction capability, the more manufacturers seek to receive green credits by increasing efforts to their suppliers. Theoretical and managerial implications are offered.