Strategic environmental investment under intergovernmental regulatory competition: An evolutionary game approach

Abstract

Competitive pressures among local governments have become an increasingly important factor shaping environmental governance. By integrating the Porter Hypothesis and the Pollution Haven Hypothesis within a unified analytical framework, this study develops an evolutionary game model involving local governments, external governments, and firms to examine how intergovernmental competition in environmental regulation influences corporate environmental investment behavior. Numerical simulations are conducted to explore the evolutionary trajectories of each actor’s strategy under different parameter settings. The results reveal that: (1) Firms are more likely to adopt environmental investment strategies when both levels of government effectively enforce stringent environmental regulations. However, as external governments tend to relax regulatory intensity, firms become more inclined to evade regulation rather than pursue innovation-driven investment. (2) Well-designed reward and punishment mechanisms further encourage firms to engage in environmental investment, whereas excessive growth in environmental subsidies weakens the enforcement capacity of local governments. (3) Strengthening penalties imposed by higher-level governments and increasing the weight of environmental quality indicators in performance evaluations enhance local environmental regulation and stimulate firms’ proactive environmental behavior.