| Summary: | China expanded the application of the third-party treatment model (TPTM) in 2017 for effectively tackling the issues related to industrial pollution on a trial basis, and the model could diversify the government’s toolbox for addressing industrial pollution. With multiple players such as local governments, polluters, and environmental services providers (ESP) involved in the TPTM, appropriate guidance and coordination among the three players are critical to the success of the TPTM. This study constructs an evolutionary game model for the three players to capture their interaction mechanisms and simulates the three-player evolutionary game dynamics with the replicator dynamics equation. The simulation results show that heavier penalties for pollution and lower regulatory costs incurred by local governments could effectively improve the performance of the TPTM. Moreover, although environmental incentives provided by the central government to local levels do not affect the ultimate performance of the TPTM, they do shorten the time needed for the effect of the TPTM to emerge. The study concludes by proposing policy recommendations based on these results.
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