Government regulation and enterprise decision in China remanufacturing industry: evidence from evolutionary game theory

Energ. Ecol. Environ. https://doi.org/10.1007/s40974-020-00198-8 ORIGINAL ARTICLE Government regulation and enterprise decision in China remanufacturing industry: evidence from evolutionary game theory Xihui Chen1 1 2 • Jian Cao1 • Sanjay Kumar2 School of Management, Zhejiang University of Technology, Hangzhou 310023, China College of Business, Valparaiso University, Valparaiso 46383, USA Received: 9 August 2020 / Revised: 18 September 2020 / Accepted: 13 October 2020  The Joint Center on Global Change and Earth System Science of the University of Maryland and Beijing Normal University 2020 Abstract Currently, the large-scale industrial production has made mountains of scrapped products and inevitably exerts irreversible damage to the nature resource and environment. Under this real situation, remanufacturing industry is able to provide a new path for government and enterprises to deal with the scrapped products and find the new growth point of ecological economy. So, the problem that how to push forward the development of remanufacturing via the regulations of government has become the focus to the scholars and practitioners of enterprises. In this paper, the evolutionary game model was established in order to analyze the optimal strategies for both the government and the enterprises. Based on the obtained results from evolutionary game model, it shows that when the revenues gotten from supervision activities surpass the costs, government will supervise enterprises’ production pattern positively. Meanwhile, if the profits earned by polluted production are higher than it in remanufacturing production, enterprises will keep their patter of production, although they may face the penalties of government. Then, a case study based on the long-term perspective was introduced in order to verify the rationality of the game model in math. The result of this paper shows that the regulation of government will exert the significant influences to firms’ decision about remanufacturing. During the different periods of remanufacturing industry development, government regulations will make different influences. Keywords Government regulation  Green decision  Evolutionary game  Game theory  Circular economy & Xihui Chen 1 Introduction Remanufacturing is able to bring environmental and economic benefits to every country. Regarded as the environmentally friendly industry, remanufacturing now has gradually received intense attentions from the researchers and government agencies. In response to the resource shortages, excessive energy consumption as well as the environmental degradation, remanufacturing provides a viable option for managing the increase in the number of scrapped products worldwide (Kelly et al. 2017; Cao et al. 2020). Through a series of industrial procedures that may include inspection, dismantling, repair, and testing, remanufacturing can restore the used product to the same capacity as the new products (Gagnon and Morgan 2014; Sofia et al. 2017). Comparing with the usage of the ‘‘new’’ components for production, remanufactured products can also reduce electricity consumption by about 60%, metal materials by 70%, and alleviate the air pollutant emissions by about 80% (Chang et al. 2015; Kasman and Duman 2015). The policies of Swap the Old for Remanufacturing and Pilot Remanufacturing Enterprises, introduced in 2013, had encouraged and provided impetus to firms enter into remanufacturing industry. These policies are largely responsible for the current growth paces of remanufacturing in China. The government selected a set of Pilot Remanufacturing Enterprises and supported them with initial capital and expertise in this emerging field (MIIT 2014). These pilot companies were tasked with pioneering remanufacturing activities. Swap the Old for Remanufacturing initiative provides government funded subsidies to the pilot enterprises. Our research team investigated these pilot enterprises, and the remanufacturing industry and 123 X. Chen et al. production line in China are shown in Fig. 1. The policy encourages such enterprise enhancing the recovery scale of end-of-life (EOL) products (Tian and Chen 2014; Wei et al. 2015). Policies and practices to advance remanufacturing industry have been the focus of researchers and scholars of circular economy, policy makers, and the practitioners of remanufacturing enterprises, as well as the potential customers. Hence, the governmental measures like policies above play an important role in the development of remanufacturing industry. Meanwhile, remanufacturing industry in China has undertaken about 2 decades, so how about the evolution progress of this emerging industry in China? What measures could the double participants (government and enterprise) adopt in different periods of remanufacturing industry’s development? Thus, deriving from these problems, we regard government regulation and enterprise decision as the research target. In this paper, we use evolutionary game models to analyze the relationship between the government and the manufacturing enterprises and research on their decisions to prompt remanufacturing industry. Compared with the traditional game theory, evolutionary game model can depict the changes and evolution progress of decisions of participants in the model. Participants here can adjust their preferable strategies according to the development of China’s remanufacturing industry, which is more closing to the practical operation situations in China. Based on the replicator dynamics equations, we can obtain the evolutionary stable strategies (ESS), which are used to get preferable strategies for the participants (government and enterprise) in the game model. In order to support the results of evolutionary game model, the practical case study is also provided in the paper to prove the evolution progress of China remanufacturing industry. The rest of the paper is organized as follows: After the introduction, in Sect. 2, we provide a brief literature review. In Sect. 3, an evolutionary game model between the government and firms is developed. An practical case study based on our field investigations is introduced in Sect. 4. Finally, in conclusion, Sect. 5 outlines the highlights of this paper, gives several practical Fig. 1 Remanufacturing industry and production line in China 123 recommendations, and discusses future prospects of Chinese remanufacturing industry. 2 Literature review Regarded as the new research field of circular economy and renewable business, remanufacturing has attracted the attentions of academic scholars and practitioners of firms. During the recent years, a growing number of papers related to remanufacturing have been published. By the observations and analysis of the previous papers, the research methods in the field of remanufacturing are also diversified. Hence, in this section, the literature review was analyzed from three parts. Finally, comparing with the previous liter (...truncated)