A Dynamic Game Model With Government And Enterprises Under Environmental Pollution Emission Caps

Environmental pollution cap is a widely used tool for environmental policy, which is often difficult to achieve satisfactory results in the actual implementation process. One of the reasons is that Enterprises have information superiority over the government, which allows companies to take advantage of this for their own fight for a more liberal policy environment. This paper, with a condition of asymmetric information, attempts to establish a dynamic game model between government and business, and divides emissions caps into the caps in discretions and in rules by different decision order of different variables to analyze the behavior patterns of government and enterprises. And then, in order to analyze the relationship between information asymmetry and enterprises’ environmental pressures by empirical research, the paper takes the intensity of environmental regulation and the proportion of state-owned enterprises as the measure of environmental stress and of degree of information asymmetry on the industry level, and takes the enterprises’ ratio of sewage charges and administrative expenses and the degree of environmental information disclosure as the measure of environmental stress and of degree of information asymmetry on the enterprise level. Finally, on the basis of the theoretical and empirical analysis, the paper proposes an improved game plan for the government to make up for the inefficiency caused by information asymmetry.The theoretical model shows that enterprises have enough motivation to mislead the government so that it would set a more relaxed emission caps when it speculates enterprises costs only depending on the survey of accounts and enterprises’report of its costs. The empirical research on industry level shows that there is a positive correlation between the proportion of state-owned enterprises and the intensity of environmental regulation, which means that the government’s control of state-owned enterprises help itself collect more accurate information so that the government can set a stringent cap, and the empirical research on enterprise level shows that enterprises with higher degree of environmental information disclosure usually have the higher ratio of their sewage charges and management fees, which means that reduction on information asymmetry may make the enterprise (or at least listed companies) have to face greater environmental expenditures. The final improved game plan shows that, without considering replacing the instruments of environmental policy, if the government has nothing to do with the information asymmetry, it can take a theoretically hybrid strategy, by which the government can adopt discretionary caps with a certain probability, keep its decision as a secret to the enterprise until the latter pays its environmental investment and get smaller social cost expectations.