# Tax or Subsidy? Optimal Carbon Emission Policy: A Supply Chain Perspective
## 2 Literature Review  
Our paper mainly relates to the following three streams of literature: (1) consumer behavior to the greenness of products (e.g., environmentally friendly products); (2) green supply chain management; and (3) government policy on operations and supply chain. Consumer awareness regarding the greenness of products has received increasing attention. Among early works, [PERSON] and [PERSON] [9] investigated consumer preferences for environmentally friendly products and evaluated the factors influencing consumer decision-making when purchasing recyclable products: price, expected quality and psychological benefits. [PERSON] [10] established a quality-based model for products with both traditional and environmentally friendly attributes and segmented the market based on the environmental awareness of consumers. Interestingly, the development of green products and strict environmental standards are not necessarily environmentally beneficial. [PERSON] and [PERSON] [11] analyzed a structure where both the retailer and manufacturer benefit out of green initiatives (which results in an increase in market demand of the green product), however the cost of greening falls on the manufacturer. [PERSON] et al. [12] conducted an empirical survey in Ontisha and developed a theoretical framework based on the theory of planned behavior (TPB), finding that attitude, subjective norms and environmental knowledge are the major influencing factors in developing intentions to engage in formal e-waste collections. In this paper we assume that consumers are green-sensitive and the greening level of a product is of a quantifiable attribute. The second stream that closely related to ours is on green supply chain management. [PERSON] et al. [13] carried out a comprehensive literature review between 1996 and 2013 on three themes of environmental supply chain management and developed a conceptual framework of green procurement for future empirical research. [PERSON] et al. [14] focused on the optimal production decision of the manufacturer under stochastic demand with a total emission cap in the trading system. [PERSON] and [PERSON] [15] showed that both manufacturers and retailers invested in greening, which led to demand expansion. They analyzed the optimality of greening effort and proposed a two-part tariff contract to coordinate the green supply chain. [PERSON] et al. (2016) investigated the allocation of carbon emission reduction targets relating to products in a decentralized make-to-order production supply chain. [PERSON] et al. (2017) studied the impact of product greening costs and government regulations on a single firm and duopoly in a green-sensitive consumer market. Green supply chain management also includes those investigating the remanufacturing related activities such as product design, recovery, collection and reverse logistics (see e.g., [PERSON] et al. ; [PERSON] and [PERSON] (2018); [PERSON] et al. (2019)). Different from the above-mentioned literature, we considered a green supply chain consisting of one government policy-maker and one manufacturing firm. The government endogenously decides her policy (tax or subsidy) to maximize the total social welfare. Our work is also closely related to those literature investigating government policies on firm's greening behavior. [PERSON] (2016) discussed the case of a monopolist who produces a single polluting product and incurs a tax as a consequence. [PERSON] et al. (2018) surveyed the impact of composite regulatory plans on automobile manufacturers product development. [PERSON] et al. (2018) established a price-dependent demand model focusing on the role of environmental taxes in reducing environmental pollution. [PERSON] et al. (2018) considered government subsidy polies on different subjects, (i.e., manufacturers, consumers or both). The optimal policy depends on two factors: whether the products have a well-established market price, and how the government weighs on consumer welfare versus the manufacturer's profit.