How to establish a coordinated supervisory mechanism of internet finance companies in China?

Abstract

This paper aims to explore how local government can be involved in regulating the digital innovations of internet finance companies in China. Game models were used to study the behaviors between internet finance companies and local government, and between local government and central regulatory agencies. The following phenomena were observed: in a static game, internet finance companies will tend to choose high-risk innovation activities, while local government can effectively prevent the high risks inherent to innovation by participating in supervision. In a dynamic game, internet finance companies will take rent-seeking approaches to evade punishment, which lower the likelihood of local government supervision. From these results we can propose policy implications for regulating digital innovation of internet finance companies.