Research On Production Decision Of Loss-averse Firms Considering Random Demand Under Emission Trading

With the in-depth promotion of emission trading in the world,the production decision of firms considering emission trading has become a hot issue in the field of firm operation management,it is an objective fact that the firms face random demand under emission trading.At the same time,the attention of consumers to the pollution emission of products has changed the market demand structure,and the generalization of strategic consumer behavior has posed new challenges to the firm production decision.In the uncertain situation,it is very important to take the psychological and behavioral factors of the decision maker into account.Our study based on the literature review of "firm production and operation under emission trading" and "newsboy problem",analyzes three sources of emission permits: government paid initial distribution,pollution reduction,and emission trading market,to judge whether the firm will cut down the pollution to achieve the goal of minimizing the cost of emission permits.On this basis,considering the risk psychology of decision-makers,and based on the loss-averse utility model in Prospect Theory to find the effects of psychological expected profit and loss-averse coefficient on the optimal production decision,the comparison with the equilibrium solution under the Expected Utility Theory helps us confirm the existence of decision bias.Then,we take price as an endogenous variable to construct the additive demand function which is affected by price.Finally,we establish a emission-sensitive demand function to guide firms to invest in green technology to reduce product pollution and fully seize the market opportunities from the consumer.According to the research question,after the relevant theoretical research and MATLAB numerical example analysis,the conclusions are as follows:(1)Under the condition of random demand for products,the risk-neutral firms have higher production willingness,and when the loss aversion coefficient is close to and greater than 1,the firm’s perceived gain dominates,which will reduce the optimal output and will be very sensitive to it,if the psychological expectation profit is set high at this time,it will be helpful to guide the firm to increase the optimal output to reach the maximum perceived expectation.In addition,we found that when the initial price of emission permits is lower than the emission market price,if the government initially allocate a large amount of emission permits to firms without compensation,then will reduce the firms’ willingness to produce,the fact that emission permitsare seen as capital gains in the emission market is detrimental to the vitality of the product market and illustrates the importance of the government’s paid allocation of prices and quotas.(2)Under the additive demand,the reasonable psychological expected profit helps the firm to adjust the relationship between the product price and the output rationally,and the increase of loss aversion will also play a positive role.When psychological expectations are too low,firms rely on extremely high pricing-low output for maximum perceived expected utility,and when psychological expectations begin to approach and exceed the maximum expected profit under risk-neutral conditions,overestimating the product price can’t improve the perceived expected utility of the firm,but gradually dislike the actual loss brought by the product surplus,and the optimal output deviates from the mean demand.We also find that the higher the product price is,the lower the decision maker’s enthusiasm for production is.At last,we also find that reasonable initial right price and quota can help firms adjust the relationship between optimal pricing and output,and ensure the energy of emission trading mechanism and product market.(3)In the case of emissions-sensitive demand and strategic consumers affecting the pricing of firm’s products,setting a higher psychological expectation of profit and loss-averse coefficient will help firms rationalize the relationship between product prices and output,and will also help firms reduce product pollution emissions to meet the needs of low-carbon consumers and reduce the dependence of firms on pollution permits.We also found that the psychological expected profit has a much greater impact on the optimal joint decisions than the loss-averse coefficient.Finally,we proposed the government to carry out environmental publicity,the increasing sensitivity of consumers to product pollution can directly promote firms to increase investment in green technology,and help firms to achieve the double goals of "one-by-one emission reduction" and "end-of-pipe reduction".The conclusions are not only helpful to gain the optimal production decision under different random demand functions for loss-averse firms under emission trading scheme,but also provide reference for the expansion of demand functions and the selection of risk measurement criteria.