Study on the subsidy mechanism for inherent defect insurance based on evolutionary game theory

The use of inherent defect insurance (IDI) can transfer housing quality risks to insurance companies, alleviate conflicts of interest between consumers and developers and protect consumer welfare. However, the level of IDI penetration is still low in China. Developers, as buyers of IDI, and consumers, as buyers of insured houses, can influence market trends. An analysis is needed with respect to government subsidy mechanisms for developers and consumers to theoretically derive the optimal subsidy end time, amount and order to boost their investment. Therefore, an evolutionary game model is established between developers and consumers to analyse the strategy selection of stakeholders and system equilibrium stability. Then, the game trajectory of IDI market participants is simulated by MATLAB to analyse the effects of government subsidies on the evolution process and results. The results show that the government can set the subsidy end time based on the proportion of developers purchasing IDI and of consumers purchasing insured houses. The government should first subsidize developers to boost the market share of insured houses, thereby avoiding a situation in which insured houses are in short supply. Until developers’ purchase probability increases, the government should subsidize consumers to increase their probability of purchasing insured houses. The government can also determine the subsidy amount based on the cost and income of developers purchasing IDI and consumers purchasing insured houses. This research can help the government rationalize and optimize its subsidy policies to encourage developers to purchase IDI and consumers to purchase insured houses and speed up IDI penetration.