The Equilibrium of Parking Violation and China’s Economic Reform

Abstract

Abstract Political decision makers are economic agents who try to maximize self-interests. This simple assumption helps explain China’s decision-making of reform and opening up and shed light on its contradictory political logic. Under a fully planned economy, market liberalization benefits everyone, including political decision makers. After wealth is created in the market economy, political decision-makers have incentives to take a growing share of wealth for themselves if no institutional mechanism exists to check their power. When the proportion of wealth appropriated by political decision-makers exceeds the margin where the people can afford, the market starts to suffer and the growth of wealth is derailed. At the extreme, political decision-makers takes so much wealth to push the entire social economic system to the verge of collapse. Because political decision-makers do not know where the equilibrium margin is, the above thinking has practical consequences. When political decision-makers keep expanding their take of wealth, the worst scenario may occur.