Collusion, Cyclical Intervention, and Administrative System in China
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| Title | Collusion, Cyclical Intervention, and Administrative System in China
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| Author | Nie Huihua and Zhang Yuxiao |
| Organization | School of Economics, Renmin University of China |
| Email | niehuihua@263.net； |
| Key Words | central government; local government; collusion; centralization; decentralization |
| Abstract | This paper provides a “central government—local government—firm” hierarchical model of collusion and analyzes the optimal contracts for the central government. The main arguments are the following: (1) When the benefits of economic growth overweight the costs of social stability caused by “bad” technology, the central government will allow the collusion between the local government and the firm, which leads to coalmine accidents, environmental pollution, and etc.; (2) Price, public preference, and the probability of accidents will affect the central government’s choice between allowing collusion and detecting collusion, which generates cyclical intervention to productive activities; (3) Compared to centralization, under certain conditions decentralization will be more likely to lead to equilibrium collusion with more production, more transfer, and less deadweight loss; (4) For the central government, decentralization weakly dominates centralization. |
| Serial Number | WP475 |
| Time | 2013-06-26 |
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