Jiachen Li, Lihong Yu

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School of Business, East China University of Science and Technology, Shanghai, China.
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Abstract: Under the current system of safety regulation in China, a lower level in the hierarchical system means more regulatory failure. The mechanism of rewards and punishments has been proven to compensate for regulatory failures according to game theory separately. This study analyzed rewards and punishments simultaneously to strengthen the regulatory power and offset the failure of regulation; examples are provided to facilitate a comparison of the failure possibilities for various degrees of rewards and punishments. In addition, this paper describes the transformation of the behavior of coal enterprises, miners and local governments. Doubling the rewards and punishments was determined to reduce the possibility of failure of local government regulation by 27%; in addition, the probability of safe production in coal mining enterprises increased by 87%, and the willingness of miners to disclose information increased by 50%.

Keywords: Safety Regulation, Failure of Regulation, Mechanism of Rewards and Punishments

Cite this paper: Li, J. and Yu, L. (2015) Reward and Punishment Mechanism in a Vertical Safety Regulation System: A Transferred Prisoner’s Dilemma. Modern Economy, 6, 552-562. doi: 10.4236/me.2015.65054.

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