Benefit game and regulatory system of water pollutant emission trading

The key to support the emission trading in China is to establish an effective regulatory system. This paper sets up an incomplete information dynamic game model between government and pollution enterprise from the perspective of related subjects´ interests. Through the equilibrium analysis, a conclusion is reached that if central government increases the punishment force to the local protection and public participate level, it can effectively restrict local government shield enterprise´s violations. On that base, an incentive compatible water environmental regulatory system is established which both government and public take part in, to ensure the smooth implementation of emission trading policy in China.