Determination of subsidy and emission control coverage under competition and cooperation of China-Europe Railway Express and liner shipping

Silk Road Economic Belt (SREB) and Maritime Silk Road (MSR) provide important avenues for cargo transport between China and Europe. This paper addresses the issues of the subsidy for China-Europe Railway Express (CERE) on the SREB and the sulfur emission control for liner shipping on the MSR from a perspective of building a community of shared future for mankind. Two welfare maximization models are proposed for determining the optimal subsidy and the optimal sulfur emission control coverage within which the sulfur in ships’ fuel oil is required to be less than 0.1%. One considers the competition between two transport modes (CERE and liner shipping), in which their own net profit is maximized. The other concerns the cooperation between two modes, in which their total net profit is maximized. The properties of the two models are analytically explored and compared. The results show that intermodal competition outperforms intermodal cooperation in terms of social welfare, consumer surplus, and environmental pollution, though at the cost of carrier profit and total subsidy from the regulator. The regulator may efficiently control the adverse impacts of an increase in the fuel oil price or in the marginal cost of air pollution on the social welfare of the system through adjusting the CERE subsidy and the sulfur emission control coverage.