Abstract: Recycling and remanufacturing of wasted electrical and electronic products has positive external economic characteristics, often leading to insufficient motivation for enterprises. For the purpose of saving resources and protecting the environment, government provides subsidies to re-manufacturers to encourage them to recycle and remanufacture. New products and remanufactured products generally have certain differences in perceived value, and may further affect the manufacturing cost advantages play. The government is described as a decision-maker and a Stackelberg Game, in which the government acted as a leader, manufacturer and re-manufacturer are followers, recycler is the re-manufacturer's follower, is established. An optimal incentive contract between the re-manufacturer and recycler is nested based on the Principal-agent analysis. The optimal decision of the government and manufacturers, re-manufacturers is obtained. Optimal government subsidies will effectively improve the competitive advantage of remanufactured products and promot the development of remanufacturing industry, while effectively reduce the cost of burying the waste products. The optimal incentive mechanism design can effectively improve the efficiency of recycling and remanufacturing of waste. It is found that the degree of substitution of new products and remanufactured products indirectly influence government decisions and the government should adjust the subsidy according to the proportion of remanufacturing. The impact of remanufactured comparative cost advantage on closed-loop supply chain decisions is gotten by numerical analysis. The results can be used as reference for government policy formulation and company decision making.

Key words: logistics and supply chain management, closed-loop supply chain, product differentiation, incentive contract, policy decision optimization