Incentive mechanism design for promoting high-quality green buildings in China's multi-level governance system

Abstract

This study develops optimal policy incentive mechanisms to promote high-quality green buildings (GBs) within China's multi-level governance (MLG) system, addressing key challenges of information asymmetry between the central government, local government and developer. A dual principal–agent model is employed to design incentive mechanisms for both government levels across non-collusion and collusion scenarios. Comparative and numerical analyses reveal that these mechanisms enable the central government to effectively mitigate the adverse impacts of collusion and information asymmetry, ensuring consistent GB quality, environmental benefits, and social welfare, while avoiding excessive fiscal burdens. Despite collusion, the central government maintains optimal incentive intensity, while the local government screens information and incentivises developers through tailored incentive mechanisms, distinguishing between low- and high-cost developers. Both high- and low-cost developers are driven to improve GB quality, with the latter contributing greater green efforts. This study provides actionable insights for policymakers to balance fiscal sustainability and environmental goals in promoting high-quality GB development within the MLG context, offering a useful reference for countries with similar policy agendas.