The policy analysis of governing illegal logging: A game theory approach

Illegal logging has attracted worldwide attention, and some measures, such as timber procurement policies and timber regulations, have been taken. However, there are no studies that examine the governance of illegal logging using game theory. This paper applies game theory to analyze the subsidy policy for governing illegal logging as well as the effects of the subsidy on the benefits of suppliers and operators of forest products. The results show that controlling illegal logging has an impact on exporting enterprises, and the effects produced by subsidies and non-subsidies are different for enterprise. Enterprises that receive subsidies will occupy foreign markets and gain additional profits, while enterprises that are not subsidized will exit foreign markets. The amount of subsidies is related to enterprise’s governance cost. The benefit for operators and suppliers depend on the combination of supervision level and forest products’ legality. The critical point of regulation of operators is related to regulatory costs, the additional benefits of weak supervision of suppliers, and penalties for regulatory failure. The critical point for suppliers to select legal raw materials is related to suppliers’ operating costs, gray income, and the degree of punishment.