Joint optimization on green investment and contract design for sustainable supply chains with fairness concern

Increasing global environmental pollution and growing awareness of consumers about environmental issues are compelling supply chain managers to make green investments to reduce carbon emissions. In a sustainable environment, fairness concern is critical to the investment of green product development and decisions of contract design for the members of a decarbonized supply chain. This paper aims to discuss the joint decisions of green investment (i.e., the manufacturer or the retailer decides to invest in green product development) and contract design (i.e., the retailer chooses the wholesale price contract or the revenue-sharing contract) for the sustainable supply chain in the presence of fairness concern. To this end, we consider three scenarios, i.e., fairness neutrality, the retailer has fairness concern (namely single fairness concern), and both the manufacturer and the retailer have fairness concerns (namely dual fairness concern). Previous research has shown that, in the absence of fairness concern, green investment made by the manufacturer is always superior to that made by the retailer. Interestingly, we find that this is not necessarily the case in the presence of fairness concern, it depends on the investment efficiency and the fairness concern intensity. Besides, under the wholesale price contract, when the retailer invests in green product development, the manufacturer’s profit increases (decreases) with the retailer’s fairness concern intensity in the presence of single fairness concern (dual fairness concern). However, when the manufacturer invests in green product development with high investment efficiency, the profit of the retailer decreases (increases) with the retailer’s fairness concern intensity in the presence of single fairness concern (dual fairness concern), and vice versa. Moreover, we find that in the presence of dual fairness concern, the manufacturer is more inclined to pursue green product development under the revenue-sharing contract, which is contrary to the situation with single fairness concern.