Study on Interest Game and Allocation Mechanism in Allocation of China’s Environmental Management Right

China’s environmental protection issue is increasingly highlighted with its rapid economic development. Related theories and practices demonstrate that both market and government failures exist in the environmental governance issue. At present, the core issue for China’s environmental governance is the allocation of environmental management right between governments, non-governmental organizations, enterprises, and communities. The local governments function as the link among them. It is very important to study the Central Government’s mechanism design in the allocation of environmental management right and the local governments’ behavior choice. This paper analyzes the principal-agent relation between both the Central Government and local governments, and studies their selections respectively in symmetric and asymmetric information conditions. By analyzing, it holds that in the case of satisfying a certain constraint conditions, the Central Government can ensure that local governments can comply with more strictly the environmental regulation mechanism by giving them an excessive payment, whereas the local governments should truthfully select an optimal effort level.