This study investigates the mechanism that motivates supply chain firms to reduce environmental externalities while balancing the economic feasibility of the supply chain system under environmentally constrained circumstances in a competitive market. Taking government policy incentives into account, a quantitative model of an integrated supply chain that incorporates sustainable constraints is formulated to optimize supply chain firms’ operational strategies of producing environmental friendly products (EFPs). This study contributes to the literature with a better understanding the interplay and interrelation of multiple sustainable constraints and their impact on supply chain firms’ collaborative decisions. Our findings suggest that the decisions of operating EFPs are subject to sustainable constraints and that the government policy incentives play a dominant role overseeing supply chain firms’ environmental behaviors toward sustainability.
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