E-Government System Investment and Subsidy: Differential Game Analysis

This paper proposes a Stackelberg differential game model of the higher government´s subsidy for the lower government´s investment in setting up an effective, perfect E-government system. The higher government, as a Stackelberg leader, controls his subsidy rate for the lower government, and the lower government, as a follower, controls his investment level in E-government system. We give the steady state equilibrium solutions for the game. Parameters sensitivity analysis of the steady state equilibrium solutions is provided and some useful conclusions are drawn. Conditions under which the higher government will subsidize the lower government are identified. By comparing the total welfare when they engage in subsidy-investment cooperation with the one of non-cooperation, we show that such subsidy-investment cooperation is preferable.