The optimal manufacturer's reserve investment and government's subsidy policy in emergency preparedness

Emergency supplies are of great importance when coping with a disaster. The stockpiling and production of emergency supplies should depend on private manufacturers in some cases, and the government will offer the manufacturer a subsidy to encourage its investment on extra reserves. This study investigates the manufacturer's optimal decision on reserve investment and the government's optimal subsidy policy based on mathematical models. The results indicate that to gain maximum benefit, the manufacturer should allocate its funds on both physical material reserve and production capacity reserve according to the government's subsidy policy, while the government should take note of the relation between subsidy policy and subsidy period to ensure the manufacturer's provision level of emergency supplies.