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Environmental Science and Pollution Research

, Volume 26, Issue 18, pp 17918–17926 | Cite as

Effects of government regulations on Manufacturer’s behaviors under carbon emission reduction

  • Wei Feng
  • Guojun JiEmail author
  • Panos M. Pardalos
Environmental Pollution and Energy Management

Abstract

This paper shifts the discussion of low-carbon technology from science to the economy, especially the reactions of a manufacturer to government regulations. One major concern in this paper is uncertainty about the effects of government regulation on the manufacturing industry. On the trust side, will manufacturers trust the government’s commitment to strictly supervise carbon emission reduction? Will a manufacturer that is involved in traditional industry consciously follow a low-carbon policy? On the profit side, does equilibrium between a manufacturer and a government exist on deciding which strategy to undertake to meet a profit maximization objective under carbon emission reduction? To identify the best solutions to these problems, this paper estimates the economic benefits of manufacturers associated with policy regulations in a low-carbon technology market. The problem of an interest conflict between the government and the manufacturer is formalized as a game theoretic model, and a mixed strategy Nash equilibrium is derived and analyzed. The experiment results indicate that when the punishment levied on the manufacturer or the loss to the government is sizable, the manufacturer will be prone to developing innovative technology and the government will be unlikely to supervise the manufacturer.

Keywords

Carbon emission reduction Pollution Government regulations Traditional technology Innovative technology Nash equilibrium 

Notes

Nomenclature

H  Innovative technology

C  Traditional technology

R  Fixed income of the manufacturer

G  Fixed satisfaction level of the government

R  Manufacturer’s payoff when choosing an innovative technology

A  Government supervises the manufacturer’s behavior

N  Government fails to supervise the manufacturer’s cheating behavior

l  Manufacturer’s loss due to cheating when detected by the government

i  Government’s extra cost when supervising an obedient manufacturer

k  Government’s loss when failing to supervise a cheating manufacturer

i  Manufacturer’s extra revenue when cheating is not detected

yE  Manufacturer’s total revenue

yG  Government’s satisfaction level

SE  Manufacturer’s strategy set SE(H, ?C)

SG  Government’s strategy set SG(A, ?N)

p  Probability of government supervising the manufacturer’s behavior

q  Probability of manufacturer choosing an innovative technology

l  Manufacturer’s loss due to cheating when detected by the government

i  Government’s extra cost when supervising an obedient manufacturer

k  Government’s loss when failing to supervise a cheating manufacturer

i  Manufacturer’s extra revenue when cheating is not detected

Funding information

This research was supported by the National Natural Science Foundation of China (NSFC) (Project Nos. 71571151 and 71371159) and the National Planning Office of Philosophy and Social Science of China (Project No. 14AGL015).

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2017

Authors and Affiliations

  1. 1.School of ManagementXiamen UniversityXiamenChina
  2. 2.Collaborative Innovation Center for Peaceful Development of Cross-Strait Relations, School of ManagementXiamen UniversityXiamenChina
  3. 3.Center for Applied Optimization, Department of Industrial and Systems EngineeringUniversity of FloridaGainesvilleUSA

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