(Joint work with Lijue Lu and Elena Parilina) 

In this paper, we examine the abatement investment and pricing decisions within a supply

chain where consumers prioritize environmental performance. The product’s green reputation is

influenced by the gap between its unit pollution rate and an industry standard that declines over

time. The abatement capacity investment is managed by the manufacturer, but the retailer has

the option to share the associated cost. Our findings reveal that cost-sharing cooperation achieves

an economically Pareto-optimal outcome compared to the no-cost-sharing scenario. From an

environmental perspective, while it encourages greater abatement capacity investment and lowers

the unit pollution rate, in most cases, the associated increase in demand may counteract these

benefits, potentially leading to higher total emissions. Furthermore, as the industry standard

declines more rapidly, firms tend to reduce their abatement investments. Lastly, firms with lower

initial green reputation or abatement capacity – the “brown firms” – are less likely to catch up

with the evolving standard, as higher initial states drive a virtuous cycle of increased investment,

enhanced abatement capacity, reduced emissions, and further goodwill gains.

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