A study on government regulation mechanism of promoting enterprises in China in energy conservation

Abstract

PurposeThis paper attempts to study the impact of changing incentive strategies on enterprises' energy saving effort level and to construct an effective principal‐agent mechanism to achieve Pareto improvement of energy‐saving control.Design/methodology/approachStarting from the benefit relations between government and enterprises as well as their game strategies in energy conservation management, the impact of changing incentive strategies on enterprises' energy saving effort level and the asymmetric information situation of the players are studied taking into consideration the angle of strategies evolving in local government. Also, an effective principal‐agent mechanism to achieve Pareto improvement of energy‐saving control is constructed.FindingsThe results are convincing: interests of both the principal and agent had consistency under the principal‐agent mechanism, and the principal‐agent model was a mechanism with rich efficiency that could substantially arouse the enthusiasm of enterprises in energy saving. The comprehensive supervision of local governments over enterprises could effectually eliminate ill effects on energy‐saving management caused by information asymmetry under certain circumstances.Practical implicationsIt is good for locating the balance of interest of game players by building a government energy saving mechanism based on principal‐agent theory. Through solving a game stable strategy, it is beneficial to seize a key point of regulation and control policies.Originality/valueThe paper succeeds in analyzing decision behaviours of government and enterprises through the basic idea of cooperative game theory so as to make actions of enterprises at all levels agree to government determined solving of energy issues.