The Hierarchical Discrepancy in Chinese Government Behaviors and the Weakness in Policy Execution

Abstract

This paper puts forward a hypothesis suggesting a hierarchical discrepancy between Chinese central government and the local governments, which argues that, in the progress of policy making and implementation, the central government is an encompassing group, whose policy making stems from the historical responsibilities it carries, while the local governments, though politically obedient to the central government, and competing in economy with each other, usually take local economic growth into account during policy execution. By developing a double-task principal-agent model between central government and local governments, this paper comes to a conclusion that the incentive incompatibility, in the discipline contract between central government and local governments, is likely the root cause of the weakness in policy execution.