In-house production and outsourcing under different emissions reduction regulations: An equilibrium decision model for global supply chains

• We investigate how carbon tax can affect production and outsourcing decisions. • An in-house production and outsourcing equilibrium decision model is presented. • A modified projection algorithm is presented for the proposed model. • We arrive at important managerial insights and carbon policy implications. A primary dilemma for multinational firms facing different emissions reduction regulations is determining what to produce in-house and what to outsource. We study a supply chain with manufacturers and overseas suppliers each facing different carbon tax rates. We present an in-house production and outsourcing equilibrium decision model as well as a modified projection algorithm for this supply chain. Numerical examples focus on examining how carbon tax rates and consumer’s carbon awareness affect in-house production and outsourcing decisions. Analysis of the numerical results provides important managerial insights and carbon policy implications which are thoroughly discussed in this paper.