![]() While combined with penalties, the ex-post subsidies have a positive effect on biodiesel production, that is, there exists synergy effect of penalty and subsidy on renewable energy production. When spot checks are performed first, the larger subsidies will increase the probability of producing inferior cooking oil due to lower probability of spot checks. We show that the effects of subsidies depend on the implementation of the timing. ![]() The amounts of subsidies and fines also need to be determined. Under both cases, fines are imposed if fraud is found during spot checks. There are two mechanisms in the sequential combination model, spot checks after subsidy and subsidy after spot checks. UCO can be converted into environmentally friendly biodiesel or mixed with fresh cooking oil, resulting in inferior cooking oil containing harmful carcinogens but with huge profits. We take biodiesel production from used cooking oil (UCO) as an example. In this article, subsidy and penalty policies are incorporated into a sequential game theory model to explore the impact of different regulatory mechanisms on the promotion of renewable energy from recycled resources. Due to the possibility of subsidy fraud, it is necessary to explore effective ways to combine these two policies. Subsidies and penalties are two main regulation methods adopted by authorities to promote the development of renewable energy. ![]() 2National School of Agricultural Institution and Development, South China Agricultural University, Guangzhou, China.1Center for Industrial and Business Organization, Dongbei University of Finance and Economics, Dalian, China. ![]()
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