Supply Chain Consequences of Government Subsidies for Promoting Prefabricated Construction and Emissions Abatement

Abstract

This paper investigates the effects of two types of government subsidies: the unit cost (UC) subsidy and the floor-area ratio (FAR) subsidy on emissions abatement of a prefabricated construction supply chain (PCSC), comprising a project contractor (PC) and a prefab manufacturer (PM). In our model, the PC subsidized by the government decides a prefabricated ratio (i.e., the ratio of the prefabs to the sum of the prefabs and on-site produced components) and purchases prefabs from the PM for assembly construction, which enables fewer emissions than on-site construction. We find that when assembly construction is less cost-efficient than on-site construction, only the UC subsidy can promote the adoption of prefabricated construction; otherwise, both subsidies are capable of doing so, with the FAR subsidy always inducing a higher prefabricated ratio than the UC subsidy. Furthermore, the UC subsidy holds a direct-pass-through effect, which raises the prefab price, whereas the FAR subsidy stabilizes the prefab price and can induce a win-win situation for the government and the PCSC members under certain circumstances. Regarding emissions abatement, the UC subsidy helps to reduce total emissions and emission intensity, while the FAR subsidy may unexpectedly exacerbate the total emissions but always outperforms the UC subsidy in reducing emission intensity. Finally, we conduct a case study to verify the validity of the proposed model. Our study adds to the body of knowledge by providing quantitative policy optimization for emissions abatement of PCSC.