The Dynamic Evolution of Firms’ Pollution Control Strategy under Graded Reward‐Penalty Mechanism

The externality of pollution problem makes firms lack enough incentive to reduce pollution emission. Therefore, it is necessary to design a reasonable environmental regulation mechanism so as to effectively urge firms to control pollution. In order to inspire firms to control pollution, we divide firms into different grades according to their pollution level and construct an evolutionary game model to analyze the interaction between government’s regulation and firms’ pollution control under graded reward‐penalty mechanism. Then, we discuss stability of firms’ pollution control strategy and derive the condition of inspiring firms to control pollution. Our findings indicate that firms tend to control pollution after long‐term repeated games if government’s excitation level and monitoring frequency meet some conditions. Otherwise, firms tend to discharge pollution that exceeds the stipulated standards. As a result, in order to effectively control pollution, a government should adjust its excitation level and monitoring frequency reasonably.