The impact of penalty and subsidy mechanisms on the decisions of the government, businesses, and consumers during COVID-19 ——Tripartite evolutionary game theory analysis

Abstract

Purpose

– Based on the fact that punishment and subsidy mechanisms affect the anti-epidemic incentives of major participants in a society, the issue of this paper is how the penalty and subsidy mechanisms affect the decisions of governments, businesses, and consumers during Corona Virus Disease 2019 (COVID-19).

Design/Methodology/approach

- This paper proposes a tripartite evolutionary game theory, involving governments, businesses, and consumers, to analyze the evolutionary stable strategies and the impact of penalty and subsidy mechanism on their strategy selection during COVID-19. We then uses numerical analysis to simulate the strategy formation process of governments, businesses, and consumers for the results of tripartite evolutionary game theory.

Findings

– This paper suggests that there are four evolutionary stable strategies corresponding to the actual anti-epidemic situations. We find that different subsidy and penalty mechanisms lead to different evolutionary stable strategies. High penalties for businesses and consumers can prompt them to choose active prevention strategies no matter what the subsidy mechanism is. For the government, the penalty mechanism is better than the subsidy mechanism, because the excessive subsidy mechanism will raise the government expenditure. The punishment mechanism is more effective than the subsidy mechanism in realizing the tripartite joint prevention of the COVID-19. Therefore, the implementation of strict punishment mechanism should be a major government measure under COVID-19.

Originality/value

- Our paper extends the existing theoretical work. We use political economy to make the preference hypothesis, and we explicitly state the effect of subsidy and penalty mechanisms on the decision making of participants and compare their applicability. This is the work that the existing literature did not complete before. Our findings can provide an important theoretical and decision-making basis for COVID-19 prevention and control.