The effects of government subsidies on the sustainable innovation of university-industry collaboration

•Members in the university-industry collaboration who receive the Government subsidy will produce more profit.•The Government subsidy rate is negatively related to the consumer demand impact coefficient.•With the same level of effort, enterprises receiving Government subsidies will generate greater social welfare.•There is an equilibrium subsidy rate which maximizes social welfare, and its value is positively related to the external benefit coefficient.•These results can help Governments to define sustainable innovation subsidy policy. Public policies increasingly support sustainable innovation, yet are often criticized for their effectiveness. This paper analyzes how the government uses subsidies as an instrument to promote sustainable innovation in university-industry collaboration. Through a three-stage Stackelberg model, we explore the impact of different government subsidy strategies in terms of profit and social welfare. The results show that in a context where the government exercises subsidy strategies, actors within university-industry collaborations receiving the subsidy will generate more profit and greater social welfare. With the same level of effort, companies receiving government subsidies will generate greater social welfare. Regardless of the subsidy strategy, there is an equilibrium subsidy rate which maximizes social welfare, and its value is positively related to the external benefit coefficient. The conclusions of this article potentially provide a theoretical foundation for the government's sustainable innovation subsidy policy. University-industry collaboration can moreover formulate strategies for promoting products.