Eco-labelled product consumption analysis and incentive-penalty mechanism design by using a system dynamics approach

Eco-labelling scheme is viewed as an effective way to prompt the development of green consumption. However, the conflicting interests among different stakeholders have impeded its application to a great extent. To prompt a better development of the eco-labelling scheme, in this paper, in terms of the Chinese Environmental Labeling scheme which is one of the most influential and authoritative eco-labelling schemes in China, we use the evolutionary game theory to describe the interactions among the government agency, the eco-labelled enterprise and the consumer which are three major participants in the eco-labelling scheme. Next, we apply system dynamics simulation to analyze the stability of equilibrium strategy solutions of the game. The simulation results show that no stable equilibrium strategy solution exists in the current interactions among three players. Motivated by the development of mobile consumption and application of new information technologies like real-time location and mobile payment, we propose a dynamic incentive-penalty mechanism and verify its effectiveness to achieve the evolution stable state in which with less supervisions from the government side, the eco-labelled enterprises implement the standards strictly and consumers choose to buy eco-labelled products. Our results are helpful for the further development of eco-labelling schemes as well as the government environmental policymaking.