Top runner program in China: A theoretical analysis for potential subsidies

This article focuses on energy efficiency subsidy to “top runners” (high energy efficiency firms) in China. By game theory approach, some interesting conclusions are achieved. Firstly, a subsidy stimulates subsidized firms' output and profits. Secondly, a subsidy to “top runners” will reduce total emission. Thirdly, both the environmental effects of market structure and the number of subsidized firms are captured. Finally, under asymmetric information condition, we give the values of subsidy budget to identify firms' energy efficiency. In summary, this article supports the theoretic analysis of potential subsidy for TOP RUNNER program in China.