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The New Environmental Protection Laws in China have taken effect on Jan 1, 2015, which is an important milestone in the history of environmental protection legislation. Also, the game relationship between governments’ supervision and firms’ pollution treatment is re-examine by the academic circles. In accordance with the latest environmental policy, this paper studies the interaction between governments and firms under the setting of daily penalty by applying evolutionary game theory. Specifically, with the daily penalty amount being viewed as an critical parameter, evolutionarily stable strategies under different situations of amount of penalty are investigated. The results show that daily penalty is the key factor influencing evolutionary stable strategies, daily penalty would be helpful for the system to evolve to the direction in which firms controlling pollution consciously and the governments reducing the proportion of regulation quickly and effectively. Thus, the society can cultivate the right orientation under which the cost of governments’ regulation can be reduced and advocating lawabiding culture can be formed. Keywords-daily penalty; government regulation; evolutionary game; evolutionary stable strategy

Challenges and Countermeasures Faced by the Local Governments under the New Environmental Law in China