Evolutionary game analysis of enterprise carbon emission regulation based on prospect theory

Abstract

With the continuous development of a low-carbon economy, the issue of carbon emission regulation has attracted extensive attention. Considering the characteristics of bounded rationality and difference of risk perception in government and enterprises in the carbon emission regulation process, we construct an evolutionary game model based on prospect theory. Using this model, we analyze the evolutionary stability strategies of government and enterprises under the low, medium, and high risk of air quality deterioration. The results show that the cost-benefit ratio of government and enterprise is the threshold to distinguish the grade of air quality deterioration risk. When the risk of air quality deterioration is low, the government tends to be passive regulation and enterprises tend to traditional production. In the situation of medium risk, the strategy choice of government and enterprise is in a circular state. In the situation of high risk, the government tends to be passive supervision, while enterprises tend to choose low-carbon production. At the same time, there is an incentive paradox in the process of regulation of carbon emissions, but in the long run, it is more effective to strengthen the punishment of local governments’ passive regulation than to increase the punishment of enterprises.