Regulatory game model of carbon leakage collusion: Prospect theory and verification agency dynamics

Abstract

The compliance of carbon data quality is a key factor that concerns national image, market stability, and policy-making, and has always been one of the hot issues widely concerned by all sectors of society. As an important tool for promoting corporate environmental, social, and governance (ESG) behaviors, the Emission Trading System (ETS) plays a significant role in achieving carbon emission reduction targets. This study introduces prospect theory to construct a regulatory game model of carbon leakage collusion behavior involving both passive and active participation of verification institutions, and discusses the collusion conditions of various participants under different model parameters. Through numerical simulation, the study explores the impact of key factors such as collusion benefits on the shift in the collusion behavior of verification institutions and on the collusion situation of multiple behavior subjects under different model parameters. The main conclusions are as follows: 1) The choice of collusion method by the actors of carbon verification institutions is influenced by their subjective perception of the probability of successful government supervision and the benefits of collusion; 2) The behavior subjects are more sensitive to changes in the degree of loss aversion coefficient than to changes in the degree of marginal sensitivity coefficient.