An optimal penalty in an environmental pollution game with the suspension of production

摘要

This paper investigates the enforcement of regulator using an appropriate penalty, in the framework of game theory, to force a polluting firm to act in a socially optimal way. In most related literature, the penalty is considered to be only related to the degree of pollution. In such a case, a stable equilibrium fully complying with environmental regulations is unreachable. Hence, a completely restraining penalty (CRP) is proposed in this paper to reduce the probability of the firm's violating behaviors under the penalty mechanism with suspension of production (SOP). This statement is proved by introducing the concept of epsilon-Nash equilibrium. A set of simulation studies is conducted based on System Dynamics to verify the model. Conclusions derived from the simulation study give us further insights into the relationship between penalty and dynamic game.