The Research On Regulation For Online P2P Lending In China: Based On Game Theory

Financial industry is very important for economic development, but lots of uncertainty and particularity to it, and also a high-risk industry. Intense competition makes financial field emerge varieties of innovations, but financial innovation has two sides, and strong correlation among financial risks, so different innovations on financial field have different financial regulation. There is a so important task to strictly think on relations between internet finance and its regulation. Because online P2 P lending is one of the internet finance modes, there is specialty to analyze its development and regulation.But the credit system in China still is imperfect, online information is insufficient to credit assessment, and more investigation offline is needed, which is a particularity for online P2 P lending in China. How to regulation financial innovation is a basic and important issue, especially, on-site inspection. In fact, on-site inspection is the very key to financial regulation.This paper analyzed the regulation issue on online P2 P lending in game theory perspective and studied the behavior factor of players how to affect the probabilities of choosing their optimal strategy, at the same time, based on evolutionary game theory, this paper also researched the evolutionary stable strategy of dynamic game in the long run, and the convergence mode(sustained steady convergence or oscillatory convergence), and put forward to some relative recommendations.This paper totally includes six chapters. The First Chapter is Introduction, the Second Chapter is Relative Theories and Previous Researches.Then, two topics are included in this paper:The first topic is the Chapter Three. This chapter totally includes four aspects:(I) the development status of online P2 P lending in China;(II) the differences between China’s online P2 P lending and foreign’s;(III) the main risks of online P2 P lending in China;(IV) the regulation problems of online P2 P lending in China at present and lessons from online P2 P lending in foreign. Specially, those data in Chapter Three come from public data in internet, relative investigation data. This paper had marked the data source.The second topics are the Chapter Four and the Chapter Five. The Fourth Chapter analyzed the game between online P2 P lending and regulatory agency and their behavior factors how to affect the probabilities of choosing their optimal strategy under the three different scenarios. The Fifth Chapter studied the evolutionary stable strategy of dynamic game in the long run by applying evolutionary game theory based on bounded rationality, and solved the locally equilibrium point about dynamic replicator system and analyzed the stability of the locally equilibrium point, and discussed the evolutionary stable strategy and convergence mode.The Sixth Chapter is Conclusion and Further Researches. This chapter mainly stated major conclusions, relative recommendations, imperfections, and further improvements and researches.Those main conclusions are as following:(I) Necessity and particularity on regulation. For online P2 P lending, there cannot choose laissez-faire regulation because it still immature, but makes its development better and healthier by regulation. Considering the long tail of online P2 P lending, it is indispensable to impose mandatory, professional and sustainable regulation on online P2 P lending.(II) Whether to check the borrowers offline for online P2 P lending platform and whether to select supervision for regulatory agency is the mixed strategy. The players choose the optimal themselves strategies based on a probability. The game between online P2 P lending platform and regulatory agency exists Mixed Strategy Nash Equilibrium.(III) This paper analyzed the Mixed Strategy Nash Equilibrium of the game between online P2 P lending platform and regulatory agency and players’ behavior factors how to affect the probabilities of choosing their optimal strategy and the curves on different behavior factors and probabilities.(IV) The players in classic game theory are perfectly rational by maximizing their own utility, but perfect rationality is failure in evolution of biological populations. So, the dynamics and stability of populations replace the rational hypothesis, that is, bounded rationality of players. This paper studied the dynamic game in the long run between online P2 P lending platform and regulatory agency applying evolutionary game theory, the two main conclusions are:(i) if the amercement is less than the cost of supervision, the dynamic convergence mode of evolutionary stable strategy of the dynamic game in the long run is sustainable and converges to a stable nodal point;(ii) if the cost of supervision is less than the amercement, the dynamic convergence mode of evolutionary stable strategy of the dynamic game in the long run is oscillatory(fluctuant) and converges to a stable focus point.Based on the deductive of model, some relative recommendations are as following:(I) Reducing the cost of supervision and increasing amercement to illegal online P2 P lending platform can effectively make online P2 P lending platform further increase the probability of checking borrowers offline.(II) Online P2 P lending platform should enhance the probability of checking borrowers offline to reduce the losses and avoid lots of bad debts in order to maintain the stability of the financial system.(III) If the more increasing the rebate online P2 P lending platform obtains, the bigger the probability of supervision is. Some unqualified borrowers may give the rebate to online P2 P lending platform in order to get a loan, so regulatory agency should increase the probability of supervision to stop online P2 P lending platform getting the rebate.(IV) For those punished online P2 P lending platform, the larger losses because of declining reputation or credibility are, the lower the probability of supervision. That is, promoting the influence of social supervision such as developing and enhancing self-regulation, public regulation and so on can effectively coordinate the supervision from regulatory agency, which can better strengthen competition and promote survival of the fittest.Finally, there are specially two points below:The first, according to relative mathematical deductive and inference, the more amercement is, the lower probability of regulation. Because after increasing the amercement, the probability of checking borrowers offline for online P2 P lending platform is also bigger. Therefore, that the amercement is more and more is not completely right and effective.The second, if the more online P2 P lending platform gets rebate, the bigger the probability of checking borrowers offline, this is a opposite result compared with intuitive sense, but being obtained from the mathematical deductive. Because the more increasing the rebate is, the bigger the probability of regulation, to some extent, the online P2 P lending platform will likely face the losses of amercement and reputation or credibility.