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Subsidy strategy on new-energy vehicle based on incomplete information: A Case in China
Physica A xxx (xxxx) xxx
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Subsidy strategy on new-energy vehicle based on incomplete information: A Case in China Hao Zhang a , Guixin Cai b , a b
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Zhangzhou City College, Zhangzhou, 363000, PR China China Citic Bank, Zhangzhou, 363107, PR China
article
info
Article history: Received 18 February 2019 Received in revised form 14 October 2019 Available online xxxx Keywords: Incomplete information New-energy vehicles Subsidies
a b s t r a c t According to pilot subsidy policy for new energy vehicles in China, this paper introduces a signaling game model to explore the adverse selection issue in the process of subsidy and to analyze the game equilibrium between government and automobile enterprises. The results show that the development level of new-energy vehicles determines the different strategies adopted by enterprises in the process of obtaining subsidies. The government can dynamically adjust the subsidies policy in the following ways. In the early stage of research and development of new energy vehicles, appropriate subsidies should be given to enterprises. Before the new energy vehicles go on the market, the establishment of new energy vehicle infrastructure should be concentrated. After the vehicle enters the market, the government should provide necessary support for the purchase of new energy vehicles and expand the market share of new energy vehicles. © 2019 Published by Elsevier B.V.
1. Introduction With the rapid development of economy and urbanization, China has planned vigorously developing energy-saving [1] and new energy automobile industry (2012–2020). The demand for automobiles is increasing sharply. At the same time, the rapid consumption of energy and the pollution of the environment have become more prominent. Therefore, accelerating the cultivation and development of new-energy vehicles is not only an urgent task to effectively alleviate the pressure of energy and environment to promote the sustainable development of the automotive industry, but also a strategic measure to accelerate the transformation and upgrading of the automotive industry and cultivate new economic growth points. At present, the development and utilization of new energy vehicles catches a lot of attentions worldwide [2]. China has promulgated many relevant policies and measures for energy conservation and emission reduction [3], especially for environmental protection [4], energy conservation [5] and new energy automobile industry development. New-energy vehicles in China currently are still in the initial stage of development, facing the difficulties of technological innovation and market cultivation, imperfect key technologies, immature consumer market, high prices and imperfect supporting infrastructure, which hinder the development of new energy vehicles industry [6]. The government of China develops the new energy automobile industry by price policies and financial subsidy. It hopes to alleviate the energy crisis and reduce environmental pollution by vigorously developing the new energy automobile industry. In June 2010, China’s Ministry of Finance and other ministries jointly issued the Notice on the Pilot Subsidy for Private Purchase of New Energy Vehicles, which decided to start the pilot subsidy work in five cities, including Shanghai, Changchun, Shenzhen, Hangzhou and Hefei. ∗ Correspondence to: 363107, Jiaomei town, Taiwan business investment zone, Zhangzhou, China. E-mail addresses: [email protected] (H. Zhang), [email protected] (G. Cai). https://doi.org/10.1016/j.physa.2019.123370 0378-4371/© 2019 Published by Elsevier B.V.
Please cite this article as: H. Zhang and G. Cai, Subsidy strategy on new-energy vehicle based on incomplete information: A Case in China, Physica A (2019) 123370, https://doi.org/10.1016/j.physa.2019.123370.
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At present, the number of pilot cities have been raised to 25. The new-energy automobile subsidy is pivotal for exploring the future development plan of China’s emerging industries. The new-energy automobile industry is a huge and complex system. The stable development of the new energy automobile industry requires not only the technology for driving system and market demand, but also the support from the government and other external development environment [7]. As a result, China has implemented an active new energy automobile subsidy policy. However, in the process of developing the new energy automobile industry, the government and enterprises have played a continuous game to maximize their own interests. Game theory is to study the decision-making and the equilibrium of such decision-making issue when the behavior of decision-makers interacts directly. In recent years, with the development of game theory, the research on the game between government and enterprises, as well as supply chain enterprises, has become more and more in-depth. This paper establishes a signal game model, analyzing the subsidies of the government and new energy companies. According to the analysis of the China’s case, we propose corresponding policy recommendations based on the equilibrium. The contribution of this paper is mainly reflected in two aspects. Theoretically, the current research on new energy vehicles mainly focuses on the technical level and the policy support level for technology and pays less attention to the side effects of the policies. However, the traditional rent-seeking model cannot fully describe the interests of various subjects and subjects in the new energy industry. Therefore, this paper describes the subsidy interaction between the government and new energy auto companies in different situations in the development of new energy auto industry through the signal game model. This research not only enriched the research on the new energy vehicle industry, but also promoted the expansion of traditional rent-seeking theory on research issues. Practically, a lot of countries are developing new energy vehicles, and the incentive policies for new energy vehicle industries in various countries, especially those in developing countries, are very similar. Therefore, this research also has certain reference significance for the formulation of new energy automobile industry development policies in countries and regions with similar policies. The framework of the rest article is as follows. The second section is literature review, and the third section is the model. The fourth section is equilibrium analysis, and the last section is conclusions and policy implications. 2. Literature review New energy vehicles are the inevitable choice of low carbon, and the development trend of automobile industry. The direct driving force for the industrialization of new energy vehicles is the strategy formulated by the state and related supporting policies. The United States, Japan and other developed countries attach great importance to the development of new energy vehicles. They support the development and development of new energy vehicles by financial support, tax preferences and other means, and have made achievements. Foreign research on the new energy automobile industry is usually carried out jointly by universities, research institutes and enterprises under the guidance of the government. It mainly focuses on the related theories of new energy development technology, industrialization, marketization and so on. The success of the research on the new energy automobile is mainly concentrated in the United States, Japan and Europe. The research on the new energy automobile industry in the United States mainly focuses on industrial theory and policy, such as battery automobiles and hydrogen automobiles. Wilson and Burgh [8] analyzed the role of hydrogen energy in energy independence and security in the United States, but they pointed out that large-scale utilization would face many problems, such as technology, thermal power loss, scale and safety. At the same time, the development of hydrogen energy supporting technology and infrastructure lags that of hydrogen-fueled automobile technology seriously, so the United States needs to overcome many technical and economic difficulties to further develop hydrogen energy. Stokes and Breetz [9] comprehensively studied the development trend of new energy vehicles in the United States in recent years and the policy and legal system formed by the government to protect the development of new energy vehicles. On this basis, it is proposed that a unified international standard system of production and safety should be established for the development of new energy vehicles worldwide. Japan is mainly committed to R&D and industrial promotion of hybrid electric vehicles. Japanese scholar Ahman [10] focused on the impact of the Japanese government on the R&D and development of new energy vehicles, as well as the importance of technical flexibility in the government’s support plan. The research also introduced some comprehensive policies adopted by the Japanese government to promote the development of the new energy automobile industry. Yoichi Kaya [11] demonstrated the energy efficiency and pollution-free of hydrogen energy and its fuel cells. It was pointed out that the key to the promotion of hydrogen energy utilization was to improve energy conversion technology, fuel efficiency and related infrastructure construction. Kudoh et al. [12] summarized the existing industrial policies and development strategies of Japan’s new energy industry and discussed in depth the technological research and development pattern and direction of pure electric and fuel vehicles in the future. Miyata et al. [13] explores the economic impact of promotion and realization of an electric vehicle society (EVS). Jing [14] studied the development mode of new energy industry in Japan, summarized the motivation new energy industry development, policy support system and the R&D and application pattern of integration of government, industry and university. Chinese new energy automobile industry began at the beginning of the 21st century. After the ‘‘863’’ plan launched in 2001, the development layout of ‘‘three vertical, three horizontal’’ was formed [15]. In 2010, the development of new energy automobile in China basically follows the trend of world development, and the new energy automobile industry has been designated as one of the seven strategic emerging industries. In view of the industrial development of new energy vehicles, Cheng [16] believes that China’s new energy vehicles have their own advantages compared with Please cite this article as: H. Zhang and G. Cai, Subsidy strategy on new-energy vehicle based on incomplete information: A Case in China, Physica A (2019) 123370, https://doi.org/10.1016/j.physa.2019.123370.
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international ones, such as new energy buses. Li [17] believes that the development of new energy automobile depends on the foundation of traditional automobile industry. Although the sales and possession of traditional automobile in China rank the top in the world, there is still a big gap between the development of traditional automobile industry and developed countries and regions such as the United States, Japan and Europe, which undoubtedly has a certain impact on the development of new energy automobile industry in China. Li [18] believes that the R&D of new energy vehicles in China has made considerable progress, but the bottleneck of core technology is prominent, and the overall R&D level is not high. Especially, the lack of core technology represented by electronic control system restricts the development of the industry. Lin [19] believes that there are problems in the technology of new energy vehicles in China. China has not yet established a systematic technical standard for new energy vehicles, but only issued relevant regulations on the testing, performance, safety and stability of new energy vehicles. The disunity of technical standards has become a restrictive factor for the development of new energy vehicles [20]. He et al. [21] investigated motion behavior of electric vehicle and found that lane-changing behavior of electric vehicle has great effects on overall wireless charging lane system. Leng et al. [22] and Leng et al. [23] analyzed each electric vehicle’s trip cost and the total trip cost under the condition of both without and allowing late arrival. Tang et al. [24] proved that the electric vehicle’s behavior of exchanging battery at the charge station can destroy the stability of traffic flow and produce some prominent jams. Yang et al. [25] point out that there are some shortcomings in the construction of relevant supporting service facilities for new energy vehicle s in China, such as charging piles and after-sales service points, which seriously affected promotion and popularization of new energy vehicles in China. Fu [26] believes that there are also some problems in policy. Although the strength of policy support seems great, the policy lag and local protectionism all have a negative impact on the development of new energy vehicles. Cheng [16] also points out that the development of new energy automobile technology in China has a mentality of eagerness for quick success and instant benefit, a tendency of impetuosity, relatively less investment by scientific researchers, and the problems of local protectionism and overheated production capacity in the new energy automobile industry are not conducive to the development of the new energy automobile industry. Zhang et al. [27] proposed a stochastic optimization framework to address the microgrid energy dispatching problem with random renewable generation and vehicle activity pattern. In recent years, scholars at home and abroad have used game theory to study the subsidy policy between the government and enterprises, but for the government and automotive enterprises, especially new energy automotive enterprises, subsidy research based on information asymmetry is rare. Therefore, this paper tries to use the signal game model to analyze the above problems and puts forward relevant policy recommendations according to the equilibrium conditions. 3. The model Due to the subsidy issue of government and new energy automobile enterprises, the object of game is government and automobile enterprises. The government uses subsidies to stimulate the R&D of automobile enterprises, to compensate for the losses of enterprises, to reduce the risks of enterprises, and to ultimately promote the rapid development of new energy automobile industry. Enterprises gain profits through research and development and production of new energy vehicles based on government subsidies. When the government subsidies increase, the subsidies automobile enterprises rises as well. It means if the government helping automobile enterprises bear the risk of technology research and development. The more likely automobile enterprises are to carry out technology research and development, the more benefits automobile enterprises can get from technology research and development. To maximize profits, the action strategies of the government and enterprises will influence each other’s strategies in the next stage, but both sides aim at maximizing their own profits. However, the information asymmetry between some automobile enterprises and the government about the development level of new energy automobile will lead to adverse selection. The automobile enterprises know their own development level, but the government does not know it. If the government cannot distinguish the development level of automobile enterprises, the low development level and high development level automobile enterprises will have an average subsidized rate when they reach equilibrium, which will not support the development of high-level automotive enterprises. In the process of the game between the government and the new energy automobile enterprises, the strategy choice of the new energy automobile enterprises and the government is interdependent. The strategy change of one player will affect the strategy of others. The game in the development of new energy vehicles involves the central government, local governments, new energy automobile enterprises and consumers, and it is a dynamic, non-cooperative multi-party game. To study this problem more conveniently, the basic assumptions of the model are as follows. (1) In the process of the game, only the game between the government and enterprises is considered, ignoring the differences between the new energy automobile enterprises and the differences between the upper and lower governments. As game participants, they all rationally pursue the maximization of their own utility. In fact, as the new energy vehicle industry is in its infancy, the main problem at present is technical issues, which is also the focus of this article. Therefore, this paper considers the difference between the innovation levels of different new energy auto companies. Other differences, the research focus of this paper is not relevant, so it is not within the scope of this article’s attention and discussion. Analysis of other differences may be the direction of further research. Please cite this article as: H. Zhang and G. Cai, Subsidy strategy on new-energy vehicle based on incomplete information: A Case in China, Physica A (2019) 123370, https://doi.org/10.1016/j.physa.2019.123370.
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H. Zhang and G. Cai / Physica A xxx (xxxx) xxx Table 1 Variable description. Variables
Meanings of variables
g b h l C S p L V E
High R&D Level of a company Low R&D Level of a company High subsidy the company applied Low subsidy the company applied Faking cost for fraudulent subsidy Punishment for fraudulent subsidy Probability of being prosecuted for fraudulent subsidy Amount of subsidy Social benefits of enterprise development The expected income of enterprises after subsidies
Fig. 1. Signaling game tree model.
(2) The game between the government and the new energy automobile enterprises is carried out in stages. The automobile enterprises must develop and produce new energy automobiles to get subsidies. The subsidies of the government at each stage of research and development are different. (3) At present, the overall development level of our new energy vehicles is relatively low. The government decides to subsidize or reduce subsidies according to the different periods of research and development of automobile enterprises. In the early stage of R&D, the government determines the quantity of subsidies according to the level of development of new energy vehicles. When the level of new energy vehicles rises to the appropriate level, the government will reduce subsidies. The faster the technology of new energy vehicles develops, the less subsidies they will receive. This model mainly studies the game in the lower stage of development. (4) In the process of pursuing maximum benefits, enterprises will take improper actions, such as speculation, rent-seeking and so on. The opportunity cost of speculation and rent-seeking is not considered. The descriptions of variables are stated in Table 1. In the government-enterprise signaling game under the subsidy policy, we use S to indicate that the enterprise is the signal sender, and R to indicate that the government is the signal receiver. In the game between enterprises and governments, it is assumed that there are two situations in which the development level of new energy automobile R&D is high, g, and low b. When the development level of automobile enterprises is high, they will apply for high subsidy, h, and the cost of applying for subsidy is 0. If the development level is low, the camouflage cost, C , will be paid when applying for high subsidy. Before subsidies are granted, the government will check the level of development of automobile enterprises. If the disguise behavior of the enterprise is found later, it will cause loss S. The probability found in the verification is p. The cost of applying for low subsidy for enterprises with low level of development, l, is 0. C is the sunk cost when the camouflage is spotted, and the subsidy cannot be obtained. S is the risk cost. This risk cost does not occur when the government refuses to grant subsidies, that is, when the government refuses to grant subsidies, there is no verification process. p is risk probability. The strategy space of the government is G = {h, l}. High subsidy is Lh , low subsidy is Ll , refusal of subsidy application is 0. The capital and social benefits brought about by the high level of development of enterprises is Vg , while those brought about by the low level of development is Vb . Besides, Vg > Lh > Vb > Ll . In this paper, the subsidies obtained by automobile enterprises are used to express their benefits. Based on the above assumptions, we can get the signal transmission game tree model process shown in Fig. 1. Please cite this article as: H. Zhang and G. Cai, Subsidy strategy on new-energy vehicle based on incomplete information: A Case in China, Physica A (2019) 123370, https://doi.org/10.1016/j.physa.2019.123370.
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In Fig. 1, the payment of the two sides of the game between the automobile enterprise and the government is as follows. (U11 , U12 ) (U21 , U22 ) (U31 , U32 ) (U41 , U42 ) (U51 , U52 ) (U61 , U62 ) (U71 , U72 ) (U81 , U82 )
= (Lh , Vg − Lh ) = (Ll , Vg − Ll ) = (0, Vg ) = (Lh − C − pS , Vb − Lh ) = (Ll − C − pS , Vb − Ll ) = ( − S , Vb ) = (Ll , Vb − Ll ) = (0, Vb )
(1)
Setting the government as a risk-neutral player, the high probability of the development level of automobile enterprises is pg , and the low probability of the development level of automobile enterprises is pb , pb = 1 − pg . Based on the above assumptions, the benefit of the government when automobile enterprises get the high subsidies is E1 = p(g |h )(Vg − Lh ) + p(b |h )(Vb − Lh ).
(2)
The expected benefit when the government chooses to give low subsidies to automobile enterprises is E2 = p(g |h )(Vg − Ll ) + p(b |h )(Vb − Ll ) + p(b |l )(Vb − Ll ).
(3)
The expected benefit when the government chose to refuse subsidies to automobile companies is E3 = p(g |h )Vg + p(b |h )Vb + p(b |l )Vb .
(4)
In Formula (2), Formula (3) and Formula (4), p(g |h ) is the probability of the high developing level of enterprise when getting high subsidies, and p(b |h ) is the probability of the low developing level of enterprise when getting high subsidies. p(g |l ) is the probability of the high developing level of enterprise when getting low subsidies, and p(b |l ) is the probability of the low developing level of enterprise when getting low subsidies. Besides, p(g |h ) + p(b |h ) = 1 and p(g |l ) + p(b |l ) = 1. 4. Equilibrium analysis The game equilibrium of government subsidies to automobile enterprises mainly depends on the relationship between the amount of application for subsidies, camouflage cost, risk probability, cost and the size of government mis-judgment cost of different enterprises with different levels of development of new energy vehicles. The different relationships lead to different types of game equilibrium and efficiency between enterprises and governments. 4.1. Separation equilibrium: Market complete success When Lh − C − pS < Ll , The game between automobile enterprises and the government can achieve a completely successful separation equilibrium of the market. The combination of the two strategies and the corresponding judgment are as follows. (1) When the development level of new energy vehicles is high, automobile enterprises will apply for high subsidies. When the development level of new energy vehicles is low, automobile enterprises will apply for low subsidies. (2) The government grants subsidies according to the application. (3) The judgment of the government is p(g |h ) = p(b |l ) = 1 and p(b |h ) = p(g |l ) = 0. Proposition 1. Enterprises with low level of development of new energy vehicles expect to benefit less from applying for high subsidies than enterprises with honest application for low subsidies. The high and low ability of applying for subsidies fully reflects the level of development of enterprises. That is to say, high level of development applies for high subsidy and low level of development applies for low subsidy consciously. The government will grant subsidies according to the application. Thus, the perfect Bayesian equilibrium of the game between government and automobile enterprises can be deduced. If automobile enterprises apply for high subsidy, the government expected benefit of high subsidy is E = E1 = Vg − Lh > 0. Obviously, the expected benefits of government subsidies are greater than those of refusal. Therefore, government subsidy is the absolute countermeasure to refuse subsidy. If the development level of new energy vehicles is high, the enterprise will certainly apply for a high subsidy, which benefits Lh . If the development level of new energy vehicles is low, the benefit of applying for high subsidy is less than that of applying for low subsidy, Ll , because of Lh − C − pS < Ll . Therefore, it is reasonable to apply for low subsidy currently. That means, applying for high subsidy when the development level is high, and applying for low subsidy when the development level is low is the only strategy that accords with sequential rationality. According to the classification of market and equilibrium types, this is a completely successful market type of separation equilibrium, which is the most efficient market equilibrium. The behavior of automobile enterprises applying for subsidies can truly reflect the level of development of new-energy vehicles. Without checking and increasing the corresponding regulatory expenditure, the government can accordingly give appropriate and appropriate subsidies to automobile enterprises, to achieve a virtuous circle and achieve the equilibrium of the game. Please cite this article as: H. Zhang and G. Cai, Subsidy strategy on new-energy vehicle based on incomplete information: A Case in China, Physica A (2019) 123370, https://doi.org/10.1016/j.physa.2019.123370.
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4.2. Merger equilibrium: Partial market success When Lh − C − pS > Ll and p(g |h ) is large, the government is confident that the level of development of new energy automobiles is high in automobile enterprises, while the camouflage cost and expected risk cost pS are relatively low compared to the high subsidies. Therefore, the following strategy combinations and judgments constitute a perfect Bayesian equilibrium for the partial success of a market. (1) Automobile enterprises apply for high subsidies, regardless of whether the level of developing new energy vehicles is high or low. (2) The government chooses to grant subsidies according to the application. (3) The judgment of the government is p(g |h ) = pg and p(b |h ) = pb , where the value of pg is very large and the value of pb is very small. Proposition 2. Enterprises with low development level of new energy vehicles expect to benefit more from applying for high subsidies than from honestly applying for low subsidies. Therefore, enterprises will choose to apply for high subsidies. The government judges that the proportion of enterprises applying for high subsidies with high development level of new energy vehicles is very high, so it chooses to grant subsidies according to the application. When automobile enterprises choose to apply for high subsidy, the expected benefit of high subsidy from the government is E = E1 = p(g |h )(Vg − Lh ) + p(b |h )(Vb − Lh ). According to the assumption, Vg > Lh > Vb > Ll , where the value of pg is large and the value of pb is small, E1 > 0. If the government refuses to grant subsidies, the benefit is E = E3 = p(g |h )Vg + p(b |h )Vb + p(b |l )Vb . Obviously, there is E1 > E3 . Therefore, the government chooses to grant subsidies that can achieve greater expected benefits and will grant subsidies according to the application of enterprises. Given the strategy and judgment of the government, if the development level of new energy vehicles is high, enterprises will inevitably choose to apply for high subsidies. If the level of development is low, the benefit of applying for low subsidy is Ll , and the benefit of high subsidy is Lh − C − pS. Because of Lh − C − pS > Ll , enterprises will still choose to apply for high subsidies. It illustrates that whether the effect of subsidies is good or bad, it is the only reasonable choice for enterprises to apply for high subsidies. According to the classification method of market type, this equilibrium belongs to the partially successful equilibrium of market. The application of enterprises cannot completely convey the information of the development level of new energy vehicles. In such a market, although the development of new energy vehicles is good in most cases, both enterprises and the government can benefit, sometimes there will be a free-riding phenomenon. 4.3. Merger equilibrium: Partial market success When Lh − C − pS > Ll , the value of p(b |h ) is large and the value of p(g |h ) is small. Considering the worst condition that the cost of camouflage and risk is close to zero, which means that the cost of counterfeiting is negligible. At this time, all enterprises will apply for high subsidies. The behavior of enterprises applying for subsidies cannot reflect the development level of new-energy vehicles. The following strategy combinations and judgments together constitute the perfect Bayesian equilibrium of the complete market failure. (1) Automobile enterprises apply for high subsidies. (2) The government refuses to grant subsidies. Proposition 3. The cost of camouflage and risk is as small as 0. All enterprises will apply for high subsidies. Currently, the government’s choice to refuse subsidies is a rational choice. At this time, the subsidy mechanism will be completely inoperable, and the market will fail completely. For the government, if enterprises apply for high subsidy, the expected benefit of government subsidy is E = E1 = p(g |h )(Vg − Lh ) + p(b |h )(Vb − Lh ). Since Vg > Lh > Vb > Ll and the value of p(g |h ) is really small, it is recognized that the expected benefit is negative. That means the expected benefit is less than the expected benefit when the government refuses to grant subsidies. Then the government’s choice to refuse subsidies is a rational choice. At this time, the subsidy mechanism will be completely unable to operate, and the market will be completely failed. 5. Conclusions and policy implications In this paper, a model is established for analyzing the choice of behavior between government and new-energy automobile enterprises in R&D subsidy application as a signal game model. Based on the model, the equilibrium analysis is carried out. The market complete success is the optimal solution of separation equilibrium; and the key to achieve this equilibrium is to increase the disguise cost and expected risk cost of enterprises to be large enough. The corresponding policy should be focused on the refinement of policies and standards, the efficiency of spot check and greater punishment. At the same time, it should be noted that promoting the research and development and use of new energy vehicles is not in the interests of the government, and it is not advisable to exert full administrative pressure. As a result, it is necessary to mobilize the enthusiasm of new energy automobile enterprises themselves. Because of incomplete information, there is Please cite this article as: H. Zhang and G. Cai, Subsidy strategy on new-energy vehicle based on incomplete information: A Case in China, Physica A (2019) 123370, https://doi.org/10.1016/j.physa.2019.123370.
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a possibility that the government misjudges whether subsidies are available or not. Under this condition, if the enterprises apply for high subsidies and the development level of new energy vehicles is high, the refusal of subsidies by the government will greatly weaken the enthusiasm of enterprises. Therefore, it is necessary to avoid such phenomena as far as possible and give priority to incentives. Based on the above analysis, the following suggestions are provided to formulate the subsidies policy for the new energy automobile industry. First, rationally adjust government subsidies to the new energy automobile industry. China is in the early stage of new energy automobile research and development. The industry is not mature enough, and enterprise technology research and development risk is relatively high, requiring government funds and policy support. Therefore, government subsidy is particularly critical to the support of enterprises. However, from the perspective of sustainable development, the investment in this process could be reduced to strengthen the research and development technology of new energy vehicles, and to achieve the rapid development of new energy automobile industry based on market. Secondly, increase subsidies, diversify subsidies, and rationally use subsidies to stimulate research and development of new energy vehicles. The Chinese government will give priority support and encouragement to the automobile enterprises engaged in research and development and production of new energy vehicles in the early stages of development. Meanwhile, take reasonable measures to subsidize vulnerable enterprises, reduce the possibility of vulnerable enterprises to adopt speculative and rent-seeking strategies, and achieve the purpose of optimizing the industrial environment through subsidies. Subsidies will be given to the demonstration of energy-saving and new energy vehicles in the field of public services and the pilot purchase of new energy vehicles by private individuals. Consumers will be encouraged to purchase and use new energy vehicles, such as giving full play to the leading role of government procurement, increasing government procurement efforts, and giving priority to clean energy vehicles in the procurement category of government procurement of official vehicles. Thirdly, increase financial and taxation policy support. The central government allocates funds to give appropriate support to the implementation of energy-saving and new energy automotive technology innovation projects, and guide enterprises to increase investment in technology development, engineering, standard-setting, market application and other aspects. Besides, a technology innovation system combining production could be built for learning and research. Enhance the guiding role of government procurement for expanding the scale of public procurement of energy-saving and new energy vehicles. Based on the reward and punishment policies of automobile fuel consumption level, relevant laws and regulations should be improved. A certain amount of funds will be allocated for the construction of a demonstration city for new energy vehicles, with emphasis on supporting the construction of charging facilities and establishing a battery cascade utilization and recycling system. Finally, improve the tax preferential policy system of the new energy automobile industry by giving priority to tax reduction and exemption. In order to support the development of new energy automobile industry, the government can exempt enterprises investing in new energy automobile R&D from the new income tax in the year. Energy-saving and new energy automobile enterprises can enjoy relevant preferential policies according to law. The Chinese government should also improve vehicle purchase tax, implement zero tax rate on new energy vehicles with obvious energy saving and emission reduction effect, and implement free license to attract consumers to buy new-energy vehicles. There are both theoretical and practical contributions in this paper. Theoretically, the signaling game model depicts the interaction of subsidy strategies between the government and enterprises in different situations. Practically, this paper provides a theoretical basis for guiding the government to scientifically introduce subsidy policies to promote the development of new energy automobile industry. However, some differences between companies are not within the scope of discussion. Analysis of other differences may be the direction of further research. Besides, the further work is quantitative analysis based on the empirical method, so there is no numerical simulation in this paper. 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Please cite this article as: H. Zhang and G. Cai, Subsidy strategy on new-energy vehicle based on incomplete information: A Case in China, Physica A (2019) 123370, https://doi.org/10.1016/j.physa.2019.123370.
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Please cite this article as: H. Zhang and G. Cai, Subsidy strategy on new-energy vehicle based on incomplete information: A Case in China, Physica A (2019) 123370, https://doi.org/10.1016/j.physa.2019.123370.
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Subsidy strategy on new-energy vehicle based on incomplete information: A Case in China Hao Zhang a , Guixin Cai b , a b
∗
Zhangzhou City College, Zhangzhou, 363000, PR China China Citic Bank, Zhangzhou, 363107, PR China
article
info
Article history: Received 18 February 2019 Received in revised form 14 October 2019 Available online xxxx Keywords: Incomplete information New-energy vehicles Subsidies
a b s t r a c t According to pilot subsidy policy for new energy vehicles in China, this paper introduces a signaling game model to explore the adverse selection issue in the process of subsidy and to analyze the game equilibrium between government and automobile enterprises. The results show that the development level of new-energy vehicles determines the different strategies adopted by enterprises in the process of obtaining subsidies. The government can dynamically adjust the subsidies policy in the following ways. In the early stage of research and development of new energy vehicles, appropriate subsidies should be given to enterprises. Before the new energy vehicles go on the market, the establishment of new energy vehicle infrastructure should be concentrated. After the vehicle enters the market, the government should provide necessary support for the purchase of new energy vehicles and expand the market share of new energy vehicles. © 2019 Published by Elsevier B.V.
1. Introduction With the rapid development of economy and urbanization, China has planned vigorously developing energy-saving [1] and new energy automobile industry (2012–2020). The demand for automobiles is increasing sharply. At the same time, the rapid consumption of energy and the pollution of the environment have become more prominent. Therefore, accelerating the cultivation and development of new-energy vehicles is not only an urgent task to effectively alleviate the pressure of energy and environment to promote the sustainable development of the automotive industry, but also a strategic measure to accelerate the transformation and upgrading of the automotive industry and cultivate new economic growth points. At present, the development and utilization of new energy vehicles catches a lot of attentions worldwide [2]. China has promulgated many relevant policies and measures for energy conservation and emission reduction [3], especially for environmental protection [4], energy conservation [5] and new energy automobile industry development. New-energy vehicles in China currently are still in the initial stage of development, facing the difficulties of technological innovation and market cultivation, imperfect key technologies, immature consumer market, high prices and imperfect supporting infrastructure, which hinder the development of new energy vehicles industry [6]. The government of China develops the new energy automobile industry by price policies and financial subsidy. It hopes to alleviate the energy crisis and reduce environmental pollution by vigorously developing the new energy automobile industry. In June 2010, China’s Ministry of Finance and other ministries jointly issued the Notice on the Pilot Subsidy for Private Purchase of New Energy Vehicles, which decided to start the pilot subsidy work in five cities, including Shanghai, Changchun, Shenzhen, Hangzhou and Hefei. ∗ Correspondence to: 363107, Jiaomei town, Taiwan business investment zone, Zhangzhou, China. E-mail addresses: [email protected] (H. Zhang), [email protected] (G. Cai). https://doi.org/10.1016/j.physa.2019.123370 0378-4371/© 2019 Published by Elsevier B.V.
Please cite this article as: H. Zhang and G. Cai, Subsidy strategy on new-energy vehicle based on incomplete information: A Case in China, Physica A (2019) 123370, https://doi.org/10.1016/j.physa.2019.123370.
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At present, the number of pilot cities have been raised to 25. The new-energy automobile subsidy is pivotal for exploring the future development plan of China’s emerging industries. The new-energy automobile industry is a huge and complex system. The stable development of the new energy automobile industry requires not only the technology for driving system and market demand, but also the support from the government and other external development environment [7]. As a result, China has implemented an active new energy automobile subsidy policy. However, in the process of developing the new energy automobile industry, the government and enterprises have played a continuous game to maximize their own interests. Game theory is to study the decision-making and the equilibrium of such decision-making issue when the behavior of decision-makers interacts directly. In recent years, with the development of game theory, the research on the game between government and enterprises, as well as supply chain enterprises, has become more and more in-depth. This paper establishes a signal game model, analyzing the subsidies of the government and new energy companies. According to the analysis of the China’s case, we propose corresponding policy recommendations based on the equilibrium. The contribution of this paper is mainly reflected in two aspects. Theoretically, the current research on new energy vehicles mainly focuses on the technical level and the policy support level for technology and pays less attention to the side effects of the policies. However, the traditional rent-seeking model cannot fully describe the interests of various subjects and subjects in the new energy industry. Therefore, this paper describes the subsidy interaction between the government and new energy auto companies in different situations in the development of new energy auto industry through the signal game model. This research not only enriched the research on the new energy vehicle industry, but also promoted the expansion of traditional rent-seeking theory on research issues. Practically, a lot of countries are developing new energy vehicles, and the incentive policies for new energy vehicle industries in various countries, especially those in developing countries, are very similar. Therefore, this research also has certain reference significance for the formulation of new energy automobile industry development policies in countries and regions with similar policies. The framework of the rest article is as follows. The second section is literature review, and the third section is the model. The fourth section is equilibrium analysis, and the last section is conclusions and policy implications. 2. Literature review New energy vehicles are the inevitable choice of low carbon, and the development trend of automobile industry. The direct driving force for the industrialization of new energy vehicles is the strategy formulated by the state and related supporting policies. The United States, Japan and other developed countries attach great importance to the development of new energy vehicles. They support the development and development of new energy vehicles by financial support, tax preferences and other means, and have made achievements. Foreign research on the new energy automobile industry is usually carried out jointly by universities, research institutes and enterprises under the guidance of the government. It mainly focuses on the related theories of new energy development technology, industrialization, marketization and so on. The success of the research on the new energy automobile is mainly concentrated in the United States, Japan and Europe. The research on the new energy automobile industry in the United States mainly focuses on industrial theory and policy, such as battery automobiles and hydrogen automobiles. Wilson and Burgh [8] analyzed the role of hydrogen energy in energy independence and security in the United States, but they pointed out that large-scale utilization would face many problems, such as technology, thermal power loss, scale and safety. At the same time, the development of hydrogen energy supporting technology and infrastructure lags that of hydrogen-fueled automobile technology seriously, so the United States needs to overcome many technical and economic difficulties to further develop hydrogen energy. Stokes and Breetz [9] comprehensively studied the development trend of new energy vehicles in the United States in recent years and the policy and legal system formed by the government to protect the development of new energy vehicles. On this basis, it is proposed that a unified international standard system of production and safety should be established for the development of new energy vehicles worldwide. Japan is mainly committed to R&D and industrial promotion of hybrid electric vehicles. Japanese scholar Ahman [10] focused on the impact of the Japanese government on the R&D and development of new energy vehicles, as well as the importance of technical flexibility in the government’s support plan. The research also introduced some comprehensive policies adopted by the Japanese government to promote the development of the new energy automobile industry. Yoichi Kaya [11] demonstrated the energy efficiency and pollution-free of hydrogen energy and its fuel cells. It was pointed out that the key to the promotion of hydrogen energy utilization was to improve energy conversion technology, fuel efficiency and related infrastructure construction. Kudoh et al. [12] summarized the existing industrial policies and development strategies of Japan’s new energy industry and discussed in depth the technological research and development pattern and direction of pure electric and fuel vehicles in the future. Miyata et al. [13] explores the economic impact of promotion and realization of an electric vehicle society (EVS). Jing [14] studied the development mode of new energy industry in Japan, summarized the motivation new energy industry development, policy support system and the R&D and application pattern of integration of government, industry and university. Chinese new energy automobile industry began at the beginning of the 21st century. After the ‘‘863’’ plan launched in 2001, the development layout of ‘‘three vertical, three horizontal’’ was formed [15]. In 2010, the development of new energy automobile in China basically follows the trend of world development, and the new energy automobile industry has been designated as one of the seven strategic emerging industries. In view of the industrial development of new energy vehicles, Cheng [16] believes that China’s new energy vehicles have their own advantages compared with Please cite this article as: H. Zhang and G. Cai, Subsidy strategy on new-energy vehicle based on incomplete information: A Case in China, Physica A (2019) 123370, https://doi.org/10.1016/j.physa.2019.123370.
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international ones, such as new energy buses. Li [17] believes that the development of new energy automobile depends on the foundation of traditional automobile industry. Although the sales and possession of traditional automobile in China rank the top in the world, there is still a big gap between the development of traditional automobile industry and developed countries and regions such as the United States, Japan and Europe, which undoubtedly has a certain impact on the development of new energy automobile industry in China. Li [18] believes that the R&D of new energy vehicles in China has made considerable progress, but the bottleneck of core technology is prominent, and the overall R&D level is not high. Especially, the lack of core technology represented by electronic control system restricts the development of the industry. Lin [19] believes that there are problems in the technology of new energy vehicles in China. China has not yet established a systematic technical standard for new energy vehicles, but only issued relevant regulations on the testing, performance, safety and stability of new energy vehicles. The disunity of technical standards has become a restrictive factor for the development of new energy vehicles [20]. He et al. [21] investigated motion behavior of electric vehicle and found that lane-changing behavior of electric vehicle has great effects on overall wireless charging lane system. Leng et al. [22] and Leng et al. [23] analyzed each electric vehicle’s trip cost and the total trip cost under the condition of both without and allowing late arrival. Tang et al. [24] proved that the electric vehicle’s behavior of exchanging battery at the charge station can destroy the stability of traffic flow and produce some prominent jams. Yang et al. [25] point out that there are some shortcomings in the construction of relevant supporting service facilities for new energy vehicle s in China, such as charging piles and after-sales service points, which seriously affected promotion and popularization of new energy vehicles in China. Fu [26] believes that there are also some problems in policy. Although the strength of policy support seems great, the policy lag and local protectionism all have a negative impact on the development of new energy vehicles. Cheng [16] also points out that the development of new energy automobile technology in China has a mentality of eagerness for quick success and instant benefit, a tendency of impetuosity, relatively less investment by scientific researchers, and the problems of local protectionism and overheated production capacity in the new energy automobile industry are not conducive to the development of the new energy automobile industry. Zhang et al. [27] proposed a stochastic optimization framework to address the microgrid energy dispatching problem with random renewable generation and vehicle activity pattern. In recent years, scholars at home and abroad have used game theory to study the subsidy policy between the government and enterprises, but for the government and automotive enterprises, especially new energy automotive enterprises, subsidy research based on information asymmetry is rare. Therefore, this paper tries to use the signal game model to analyze the above problems and puts forward relevant policy recommendations according to the equilibrium conditions. 3. The model Due to the subsidy issue of government and new energy automobile enterprises, the object of game is government and automobile enterprises. The government uses subsidies to stimulate the R&D of automobile enterprises, to compensate for the losses of enterprises, to reduce the risks of enterprises, and to ultimately promote the rapid development of new energy automobile industry. Enterprises gain profits through research and development and production of new energy vehicles based on government subsidies. When the government subsidies increase, the subsidies automobile enterprises rises as well. It means if the government helping automobile enterprises bear the risk of technology research and development. The more likely automobile enterprises are to carry out technology research and development, the more benefits automobile enterprises can get from technology research and development. To maximize profits, the action strategies of the government and enterprises will influence each other’s strategies in the next stage, but both sides aim at maximizing their own profits. However, the information asymmetry between some automobile enterprises and the government about the development level of new energy automobile will lead to adverse selection. The automobile enterprises know their own development level, but the government does not know it. If the government cannot distinguish the development level of automobile enterprises, the low development level and high development level automobile enterprises will have an average subsidized rate when they reach equilibrium, which will not support the development of high-level automotive enterprises. In the process of the game between the government and the new energy automobile enterprises, the strategy choice of the new energy automobile enterprises and the government is interdependent. The strategy change of one player will affect the strategy of others. The game in the development of new energy vehicles involves the central government, local governments, new energy automobile enterprises and consumers, and it is a dynamic, non-cooperative multi-party game. To study this problem more conveniently, the basic assumptions of the model are as follows. (1) In the process of the game, only the game between the government and enterprises is considered, ignoring the differences between the new energy automobile enterprises and the differences between the upper and lower governments. As game participants, they all rationally pursue the maximization of their own utility. In fact, as the new energy vehicle industry is in its infancy, the main problem at present is technical issues, which is also the focus of this article. Therefore, this paper considers the difference between the innovation levels of different new energy auto companies. Other differences, the research focus of this paper is not relevant, so it is not within the scope of this article’s attention and discussion. Analysis of other differences may be the direction of further research. Please cite this article as: H. Zhang and G. Cai, Subsidy strategy on new-energy vehicle based on incomplete information: A Case in China, Physica A (2019) 123370, https://doi.org/10.1016/j.physa.2019.123370.
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H. Zhang and G. Cai / Physica A xxx (xxxx) xxx Table 1 Variable description. Variables
Meanings of variables
g b h l C S p L V E
High R&D Level of a company Low R&D Level of a company High subsidy the company applied Low subsidy the company applied Faking cost for fraudulent subsidy Punishment for fraudulent subsidy Probability of being prosecuted for fraudulent subsidy Amount of subsidy Social benefits of enterprise development The expected income of enterprises after subsidies
Fig. 1. Signaling game tree model.
(2) The game between the government and the new energy automobile enterprises is carried out in stages. The automobile enterprises must develop and produce new energy automobiles to get subsidies. The subsidies of the government at each stage of research and development are different. (3) At present, the overall development level of our new energy vehicles is relatively low. The government decides to subsidize or reduce subsidies according to the different periods of research and development of automobile enterprises. In the early stage of R&D, the government determines the quantity of subsidies according to the level of development of new energy vehicles. When the level of new energy vehicles rises to the appropriate level, the government will reduce subsidies. The faster the technology of new energy vehicles develops, the less subsidies they will receive. This model mainly studies the game in the lower stage of development. (4) In the process of pursuing maximum benefits, enterprises will take improper actions, such as speculation, rent-seeking and so on. The opportunity cost of speculation and rent-seeking is not considered. The descriptions of variables are stated in Table 1. In the government-enterprise signaling game under the subsidy policy, we use S to indicate that the enterprise is the signal sender, and R to indicate that the government is the signal receiver. In the game between enterprises and governments, it is assumed that there are two situations in which the development level of new energy automobile R&D is high, g, and low b. When the development level of automobile enterprises is high, they will apply for high subsidy, h, and the cost of applying for subsidy is 0. If the development level is low, the camouflage cost, C , will be paid when applying for high subsidy. Before subsidies are granted, the government will check the level of development of automobile enterprises. If the disguise behavior of the enterprise is found later, it will cause loss S. The probability found in the verification is p. The cost of applying for low subsidy for enterprises with low level of development, l, is 0. C is the sunk cost when the camouflage is spotted, and the subsidy cannot be obtained. S is the risk cost. This risk cost does not occur when the government refuses to grant subsidies, that is, when the government refuses to grant subsidies, there is no verification process. p is risk probability. The strategy space of the government is G = {h, l}. High subsidy is Lh , low subsidy is Ll , refusal of subsidy application is 0. The capital and social benefits brought about by the high level of development of enterprises is Vg , while those brought about by the low level of development is Vb . Besides, Vg > Lh > Vb > Ll . In this paper, the subsidies obtained by automobile enterprises are used to express their benefits. Based on the above assumptions, we can get the signal transmission game tree model process shown in Fig. 1. Please cite this article as: H. Zhang and G. Cai, Subsidy strategy on new-energy vehicle based on incomplete information: A Case in China, Physica A (2019) 123370, https://doi.org/10.1016/j.physa.2019.123370.
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In Fig. 1, the payment of the two sides of the game between the automobile enterprise and the government is as follows. (U11 , U12 ) (U21 , U22 ) (U31 , U32 ) (U41 , U42 ) (U51 , U52 ) (U61 , U62 ) (U71 , U72 ) (U81 , U82 )
= (Lh , Vg − Lh ) = (Ll , Vg − Ll ) = (0, Vg ) = (Lh − C − pS , Vb − Lh ) = (Ll − C − pS , Vb − Ll ) = ( − S , Vb ) = (Ll , Vb − Ll ) = (0, Vb )
(1)
Setting the government as a risk-neutral player, the high probability of the development level of automobile enterprises is pg , and the low probability of the development level of automobile enterprises is pb , pb = 1 − pg . Based on the above assumptions, the benefit of the government when automobile enterprises get the high subsidies is E1 = p(g |h )(Vg − Lh ) + p(b |h )(Vb − Lh ).
(2)
The expected benefit when the government chooses to give low subsidies to automobile enterprises is E2 = p(g |h )(Vg − Ll ) + p(b |h )(Vb − Ll ) + p(b |l )(Vb − Ll ).
(3)
The expected benefit when the government chose to refuse subsidies to automobile companies is E3 = p(g |h )Vg + p(b |h )Vb + p(b |l )Vb .
(4)
In Formula (2), Formula (3) and Formula (4), p(g |h ) is the probability of the high developing level of enterprise when getting high subsidies, and p(b |h ) is the probability of the low developing level of enterprise when getting high subsidies. p(g |l ) is the probability of the high developing level of enterprise when getting low subsidies, and p(b |l ) is the probability of the low developing level of enterprise when getting low subsidies. Besides, p(g |h ) + p(b |h ) = 1 and p(g |l ) + p(b |l ) = 1. 4. Equilibrium analysis The game equilibrium of government subsidies to automobile enterprises mainly depends on the relationship between the amount of application for subsidies, camouflage cost, risk probability, cost and the size of government mis-judgment cost of different enterprises with different levels of development of new energy vehicles. The different relationships lead to different types of game equilibrium and efficiency between enterprises and governments. 4.1. Separation equilibrium: Market complete success When Lh − C − pS < Ll , The game between automobile enterprises and the government can achieve a completely successful separation equilibrium of the market. The combination of the two strategies and the corresponding judgment are as follows. (1) When the development level of new energy vehicles is high, automobile enterprises will apply for high subsidies. When the development level of new energy vehicles is low, automobile enterprises will apply for low subsidies. (2) The government grants subsidies according to the application. (3) The judgment of the government is p(g |h ) = p(b |l ) = 1 and p(b |h ) = p(g |l ) = 0. Proposition 1. Enterprises with low level of development of new energy vehicles expect to benefit less from applying for high subsidies than enterprises with honest application for low subsidies. The high and low ability of applying for subsidies fully reflects the level of development of enterprises. That is to say, high level of development applies for high subsidy and low level of development applies for low subsidy consciously. The government will grant subsidies according to the application. Thus, the perfect Bayesian equilibrium of the game between government and automobile enterprises can be deduced. If automobile enterprises apply for high subsidy, the government expected benefit of high subsidy is E = E1 = Vg − Lh > 0. Obviously, the expected benefits of government subsidies are greater than those of refusal. Therefore, government subsidy is the absolute countermeasure to refuse subsidy. If the development level of new energy vehicles is high, the enterprise will certainly apply for a high subsidy, which benefits Lh . If the development level of new energy vehicles is low, the benefit of applying for high subsidy is less than that of applying for low subsidy, Ll , because of Lh − C − pS < Ll . Therefore, it is reasonable to apply for low subsidy currently. That means, applying for high subsidy when the development level is high, and applying for low subsidy when the development level is low is the only strategy that accords with sequential rationality. According to the classification of market and equilibrium types, this is a completely successful market type of separation equilibrium, which is the most efficient market equilibrium. The behavior of automobile enterprises applying for subsidies can truly reflect the level of development of new-energy vehicles. Without checking and increasing the corresponding regulatory expenditure, the government can accordingly give appropriate and appropriate subsidies to automobile enterprises, to achieve a virtuous circle and achieve the equilibrium of the game. Please cite this article as: H. Zhang and G. Cai, Subsidy strategy on new-energy vehicle based on incomplete information: A Case in China, Physica A (2019) 123370, https://doi.org/10.1016/j.physa.2019.123370.
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4.2. Merger equilibrium: Partial market success When Lh − C − pS > Ll and p(g |h ) is large, the government is confident that the level of development of new energy automobiles is high in automobile enterprises, while the camouflage cost and expected risk cost pS are relatively low compared to the high subsidies. Therefore, the following strategy combinations and judgments constitute a perfect Bayesian equilibrium for the partial success of a market. (1) Automobile enterprises apply for high subsidies, regardless of whether the level of developing new energy vehicles is high or low. (2) The government chooses to grant subsidies according to the application. (3) The judgment of the government is p(g |h ) = pg and p(b |h ) = pb , where the value of pg is very large and the value of pb is very small. Proposition 2. Enterprises with low development level of new energy vehicles expect to benefit more from applying for high subsidies than from honestly applying for low subsidies. Therefore, enterprises will choose to apply for high subsidies. The government judges that the proportion of enterprises applying for high subsidies with high development level of new energy vehicles is very high, so it chooses to grant subsidies according to the application. When automobile enterprises choose to apply for high subsidy, the expected benefit of high subsidy from the government is E = E1 = p(g |h )(Vg − Lh ) + p(b |h )(Vb − Lh ). According to the assumption, Vg > Lh > Vb > Ll , where the value of pg is large and the value of pb is small, E1 > 0. If the government refuses to grant subsidies, the benefit is E = E3 = p(g |h )Vg + p(b |h )Vb + p(b |l )Vb . Obviously, there is E1 > E3 . Therefore, the government chooses to grant subsidies that can achieve greater expected benefits and will grant subsidies according to the application of enterprises. Given the strategy and judgment of the government, if the development level of new energy vehicles is high, enterprises will inevitably choose to apply for high subsidies. If the level of development is low, the benefit of applying for low subsidy is Ll , and the benefit of high subsidy is Lh − C − pS. Because of Lh − C − pS > Ll , enterprises will still choose to apply for high subsidies. It illustrates that whether the effect of subsidies is good or bad, it is the only reasonable choice for enterprises to apply for high subsidies. According to the classification method of market type, this equilibrium belongs to the partially successful equilibrium of market. The application of enterprises cannot completely convey the information of the development level of new energy vehicles. In such a market, although the development of new energy vehicles is good in most cases, both enterprises and the government can benefit, sometimes there will be a free-riding phenomenon. 4.3. Merger equilibrium: Partial market success When Lh − C − pS > Ll , the value of p(b |h ) is large and the value of p(g |h ) is small. Considering the worst condition that the cost of camouflage and risk is close to zero, which means that the cost of counterfeiting is negligible. At this time, all enterprises will apply for high subsidies. The behavior of enterprises applying for subsidies cannot reflect the development level of new-energy vehicles. The following strategy combinations and judgments together constitute the perfect Bayesian equilibrium of the complete market failure. (1) Automobile enterprises apply for high subsidies. (2) The government refuses to grant subsidies. Proposition 3. The cost of camouflage and risk is as small as 0. All enterprises will apply for high subsidies. Currently, the government’s choice to refuse subsidies is a rational choice. At this time, the subsidy mechanism will be completely inoperable, and the market will fail completely. For the government, if enterprises apply for high subsidy, the expected benefit of government subsidy is E = E1 = p(g |h )(Vg − Lh ) + p(b |h )(Vb − Lh ). Since Vg > Lh > Vb > Ll and the value of p(g |h ) is really small, it is recognized that the expected benefit is negative. That means the expected benefit is less than the expected benefit when the government refuses to grant subsidies. Then the government’s choice to refuse subsidies is a rational choice. At this time, the subsidy mechanism will be completely unable to operate, and the market will be completely failed. 5. Conclusions and policy implications In this paper, a model is established for analyzing the choice of behavior between government and new-energy automobile enterprises in R&D subsidy application as a signal game model. Based on the model, the equilibrium analysis is carried out. The market complete success is the optimal solution of separation equilibrium; and the key to achieve this equilibrium is to increase the disguise cost and expected risk cost of enterprises to be large enough. The corresponding policy should be focused on the refinement of policies and standards, the efficiency of spot check and greater punishment. At the same time, it should be noted that promoting the research and development and use of new energy vehicles is not in the interests of the government, and it is not advisable to exert full administrative pressure. As a result, it is necessary to mobilize the enthusiasm of new energy automobile enterprises themselves. Because of incomplete information, there is Please cite this article as: H. Zhang and G. Cai, Subsidy strategy on new-energy vehicle based on incomplete information: A Case in China, Physica A (2019) 123370, https://doi.org/10.1016/j.physa.2019.123370.
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a possibility that the government misjudges whether subsidies are available or not. Under this condition, if the enterprises apply for high subsidies and the development level of new energy vehicles is high, the refusal of subsidies by the government will greatly weaken the enthusiasm of enterprises. Therefore, it is necessary to avoid such phenomena as far as possible and give priority to incentives. Based on the above analysis, the following suggestions are provided to formulate the subsidies policy for the new energy automobile industry. First, rationally adjust government subsidies to the new energy automobile industry. China is in the early stage of new energy automobile research and development. The industry is not mature enough, and enterprise technology research and development risk is relatively high, requiring government funds and policy support. Therefore, government subsidy is particularly critical to the support of enterprises. However, from the perspective of sustainable development, the investment in this process could be reduced to strengthen the research and development technology of new energy vehicles, and to achieve the rapid development of new energy automobile industry based on market. Secondly, increase subsidies, diversify subsidies, and rationally use subsidies to stimulate research and development of new energy vehicles. The Chinese government will give priority support and encouragement to the automobile enterprises engaged in research and development and production of new energy vehicles in the early stages of development. Meanwhile, take reasonable measures to subsidize vulnerable enterprises, reduce the possibility of vulnerable enterprises to adopt speculative and rent-seeking strategies, and achieve the purpose of optimizing the industrial environment through subsidies. Subsidies will be given to the demonstration of energy-saving and new energy vehicles in the field of public services and the pilot purchase of new energy vehicles by private individuals. Consumers will be encouraged to purchase and use new energy vehicles, such as giving full play to the leading role of government procurement, increasing government procurement efforts, and giving priority to clean energy vehicles in the procurement category of government procurement of official vehicles. Thirdly, increase financial and taxation policy support. The central government allocates funds to give appropriate support to the implementation of energy-saving and new energy automotive technology innovation projects, and guide enterprises to increase investment in technology development, engineering, standard-setting, market application and other aspects. Besides, a technology innovation system combining production could be built for learning and research. Enhance the guiding role of government procurement for expanding the scale of public procurement of energy-saving and new energy vehicles. Based on the reward and punishment policies of automobile fuel consumption level, relevant laws and regulations should be improved. A certain amount of funds will be allocated for the construction of a demonstration city for new energy vehicles, with emphasis on supporting the construction of charging facilities and establishing a battery cascade utilization and recycling system. Finally, improve the tax preferential policy system of the new energy automobile industry by giving priority to tax reduction and exemption. In order to support the development of new energy automobile industry, the government can exempt enterprises investing in new energy automobile R&D from the new income tax in the year. Energy-saving and new energy automobile enterprises can enjoy relevant preferential policies according to law. The Chinese government should also improve vehicle purchase tax, implement zero tax rate on new energy vehicles with obvious energy saving and emission reduction effect, and implement free license to attract consumers to buy new-energy vehicles. There are both theoretical and practical contributions in this paper. Theoretically, the signaling game model depicts the interaction of subsidy strategies between the government and enterprises in different situations. Practically, this paper provides a theoretical basis for guiding the government to scientifically introduce subsidy policies to promote the development of new energy automobile industry. However, some differences between companies are not within the scope of discussion. Analysis of other differences may be the direction of further research. Besides, the further work is quantitative analysis based on the empirical method, so there is no numerical simulation in this paper. 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Please cite this article as: H. Zhang and G. Cai, Subsidy strategy on new-energy vehicle based on incomplete information: A Case in China, Physica A (2019) 123370, https://doi.org/10.1016/j.physa.2019.123370.