| Abstract | Equity and efficiency are a permanent category of political economy. To a society in transformation, conflictions between the two are more serious. How to solve these conflictions between the two is the main topic of this paper. When local government commitments of distribution are credible, investors won all economic rent under the situation of decentralization approach to reform and labors’ benefit will be neglected, but local governments have more incentive to keep incorruptibility. In the early stages of reform and opening up, neutral government played a very important role to economic growth. But with the deepening of reform and opening up, incentive mechanisms as competition between local decentralized governments may play a more important role. When local government commitments of distribution are incredible, investors’ incentive to investment will be heavily depressed, and loss of social welfare will be greater. Analysis shows that structure of industry is closely related to the protection of property rights, so in order to upgrading the industrial structure, a good protection system of property rights is more important. This paper tries to propose two approaches to solve the social and economic problems: third-party regulation and decentralization (distribute power to investors and labors, so the two parties can get credible bargaining power to economic rent.), and we also show the defects of these two approaches. |