Factors affecting firms’ green technology innovation: an evolutionary game based on prospect theory

Abstract

In the context of green development and the construction of ecological civilization, a key issue for governments is how to promote firms' green technology innovation. Assuming the bounded rationality of decision-makers, this paper constructs a game model of green technology innovation between firms and the government based on prospect theory. It dynamically analyzes the decision process and optimal strategy under different scenarios and uses numerical simulation to identify the influencing factors. There are three main findings. (1) Firms' green technology innovation decisions depend on the net income difference between strategies. Environmental regulation encourages firms to carry out green technology innovation by increasing the environmental costs to non-green technology innovation firms and increasing the income of green technology innovation firms. (2) Uncertainty and the behavioral characteristics of managers significantly affect green technology innovation. Firms' green technology innovation is positively correlated with the success rate of green technology innovation, whereas is negatively correlated with perceived value sensitivity and loss aversion. (3) There is instrumental heterogeneity in the incentive effect of environmental regulation on firms' green technology innovation. The most effective tool is comprehensive environmental regulation, followed by punishment and then subsidy. The research provides a reference for governments to formulate environmental regulations and firms to manage innovation.