Research on the impact of environmental regulation on the green cost input of SMEs

¹ College of Economics and Management, Huazhong Agricultural University, Wuhan, 430070, China
² Rosedale Global High School, Toronto, 668726, Canada
³ Sino-French Institute, Renmin University of China, Beijing, 100000, China

^* Corresponding author: fangyuqi@webmail.hzau.edu.cn

Abstract

Against the backdrop of growing environmental problems, the sustainable development of enterprises in all countries is facing serious challenges. Restricted by capital and costs, some enterprises risk breaking the law by producing or disposing of raw materials and wastes in order to make temporary profits, thus bringing about a series of environmental problems. Small and medium-sized enterprises (SMEs), which are vital for economic progress, have prompted the government to devise an array of initiatives and strategies aimed at fostering their environmentally sustainable growth. This paper explores the factors that increase the willingness of enterprises to bear green costs and how the government’s measures affect their choices by constructing a “government-firm” evolutionary game model. It is found that the government’s environmental policies, subsidies and penalties have a significant impact on SMEs’ green cost decisions. When the government’s subsidies are high enough and penalties are strong enough, SMEs are more inclined to increase their green costs to achieve a win-win situation between economic and environmental benefits.