Institutional Economics Analysis on the Chinese Qian Rules

Abstract

The word “Qian rule” (hidden rule) has been known to all Chinese people since the publication of Wu Si's Qian Rule. This paper proposes that the Qian rule, in the economic sense, is the transaction of discretion between the buyer and the rule agent. The meticulousness of the formal rule and the rigorousness of its enforcement mechanism directly determine the generation of the Qian rule. It is attached to the formal rules but simultaneously transcends their value or sometimes even violates them directly. Its essential feature is conflicting with social morality. Qian rule is a special part of the informal system and its counterpart, Ming rule, (transparent rule) covers more than the formal rules. Between the Qian rule and the Ming rule, there is a grey area, which we call the intermediate rule. The existence and popularity of the Qian rule not only violates social morality, but also digests the effectiveness of the formal system. Hence, the challenge that academics and policy makers face is how the Qian rule may be eliminated.