Implementation of a multi-agent environmental regulation strategy under fiscal decentralization

Abstract

At present, the main environmental issue facing China is extensive economic development, resulting from the Chinese government’s policy of “fiscal decentralization”. In this context of decentralization, China’s environmental governance system assigns management authority based on administrative divisions and provides vertical leadership in accordance with the constitution at the government level. In other words, the central government develops a unified environmental policy, which the local governments are responsible for implementing in their respective jurisdictions. Meanwhile, the local governments are also influenced by the private interests of enterprises, and have incentive to conspire with polluting enterprises, leading to incomplete implementation of regulation strategies. To provide a relevant theoretical basis for the strict implementation of environmental regulations under the fiscally decentralized system of China, we use evolutionary economics research tools to build an evolutionary game framework, which includes the central government, local governments, and polluting enterprises. Using replicator dynamics analysis, we explore the evolution of different participants’ behavior and their evolutionarily stable strategy. Next, based on the model solution, a MATLAB simulation tool is applied to analyze the different agents’ evolutionary steady strategy trends under different situations and their convergence trend. The results show that dynamic evolution among the three agents under the environmental regulation policy is mainly affected by the central government’s regulatory efforts, costs, administrative penalties, local governments’ environmental strengths and subsidy rate, and enterprises’ pollution-reduction efforts and taxation rate. To ensure the efficient execution of environmental regulation strategies, related policy recommendations are presented to encourage the benign transformation of environmental performance into economic performance, and to achieve a “centrally-oriented, locally-promoted and enterprise-reduced” low- carbon situation.