Screening Contract Excitation Models Involving Closed-Loop Supply Chains Under Asymmetric Information Games: A Case Study with New Energy Vehicle Power Battery

Abstract

In closed-loop supply chain systems for power battery remanufacturing, recycling and dismantling tasks will be relegated to third-party recyclers. This has significant disadvantages, inasmuch as the asymmetric exchange of information regarding the level of recycling capacity and effort after signing a contract fiscal risks to the manufacturers. The purpose of this paper is to study the “adverse selection” of recyclers and “moral hazards” hidden in their purported effort levels, based on Information Screening Models in the principal-agent theory. Our information screening model for revenue sharing will be presented, and subsequently verified using numerical simulation to demonstrate the impact of the screening contract on the expected returns of both parties. Our results show that the sharing coefficient of the remanufacturing revenue for low-capability recyclers is distorted downwards, and only truthful reporting can retain profits. High-capacity recyclers will obtain additional information while retaining profit. At the same time, as the proportion of high-capacity recyclers in the market increases, the expected return of the entrusting party increases. One critical area where this will impact the Chinese economy is in the area of new energy vehicles. We investigate a case study of our approach in new energy vehicles, which are being used to reduced CO 2 emissions, but have environmentally hazardous batteries that must be recycled safely and economically.