The government plays a crucial role in regulating the closed-loop supply chain (CLSC). We investigated the reward-penalty mechanism (RPM) for the manufacturer and the subsidy mechanism (SM) for the collector in CLSCs. The government’s goal is to maximize social welfare. Based on the centralized and decentralized decision-making models without government intervention, we developed two CLSC models where the government rewards or penalizes the manufacturer and subsidizes the collector. Then, the impact of government input cost and environmental benefit coefficients on the decision variable, firm’s profit and social welfare was analyzed. We found the following conclusions: (i) both RPM and SM increase the collection rate and the profit of CLSC partners, while the price of a new product decreases if the environmental benefit coefficient is moderate; (ii) social welfare and the profits of the manufacturer and retailer under RPM are higher than under SM, while a collector’s profit under RPM is lower than that under SM; (iii) RPM is more feasible to implement in terms of the higher collection rate, buyback price and social welfare. These conclusions could provide several managerial implications for both the government and partners of the CLSC.

This paper investigates the reward-penalty mechanism (RPM) implemented by the government in a closed-loop supply chain (CLSC) with asymmetric information. The manufacturer produces and sells products to consumers, while the collection of waste electrical and electronic equipment (WEEE) is delegated to the third-party collector, the one who has private information about the collection effort level. An information screening contract for the manufacturer is put forward to obtain the private information from the third-party collector, which is composed of buy-back price and franchise fee. By utilizing principal-agent theory, two cases are mainly examined including the CLSC without the RPM and the CLSC with the RPM. The results demonstrate that (i) the information screening contract is effective in capturing the collector’s collection effort level, (ii) raising the buy-back price to motivate the third-party collector is confirmed to perform well on enhancing the collection quantity from consumers, (iii) H-type collector collects more WEEEs and earns more profits than L-type collector, and (iv) the RPM improves the collection quantity of the enterprise and reaps more environmental benefits. The numerical results verify the validity of the contract and the feasibility of the RPM.

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