| China has been experiencing an impressive high-speed growth for more than three decades ever since1978, especially in rural area. During the reform and opening-up, the comprehensive socio-economical institutional transition such as Household Contract Responsibility System and the grassroot democracy, also profoundly changing rural China and promoting peasents’welfare. What is the driving force behind China’s such rapid growth? Institutional school thinks that appropriate formal institution guarantees the long-term growth (Acemoglu,2001). Human capital school thinks that aboundant physical capital and human capital are key factors of economic growth (Lucas,1986; Galor and Moav,2004). Because rural China neither has adequate physical capital and human capital nor formal institution such as property of farmland and efficient formal rural finance system, these kind of explanations cannot clearly clarify the continuous high growth rate in rural China. However, the traditional ritual and ethical norms based on lineage networks and Confucian rules which lasted for several thousand years in China, although not a formal institution, still unconsciously influenced our daily life, even in the21st century (Fei,1964; Peng,2004). Putnam (1993) defined social capital as some characteristics of a social group, such as social network, trust and norm which can increase the economic efficiency through cooperative action. Lineage networks linked by blood or kinship could provide credit or collateral to their members which promoted members’ welfare. Therefore, during the transition period when formal institution is gradually being constructed, it is particularly important to have a better understanding of the influence of lineage networks on peasant’s welfare, which helps explain rural China’s development miracal and economic transition. This paper aims at shedding light on the influence of lineage networks in rural China on peasants’welfare. We also discuss the interaction of informal institutions such as lineage networks and formal institutions such as financial normalization and grassroots democracy. To be specific, this paper contains main contents and related conclusions as below:First, According to a Peasants’Credit Rating System executed by the Rural Credit Cooperative Association(RCCA) in Dongtou County, Wenzhou City, Zhejiang Province, we find that the peasant who belongs to the largest clan in his village gets a higher credit level. What’s more, when his final credit level is biased from his original deserved credit level based on some predetermined criteria, his credit level will be downward adjusted with a smaller probability than his counterpart. Thest facts suggest that how traditional clan network in rural China, an informal institution, is embedded into the Credit Rating System, a formal financial institution. As the influence of the clan, the inefficiency of the resource allocation still remains in the new formal institution. Our research provides an empirical evidence about how the informal institution is embeded into an formal institution, which can also be viewed as an evidence about path dependence in institutional transition.Second, We use the village-level Chinese Family Panel Studies(CFPS2010) data to explore the influence of the lineage network and the grassroot democracy in rural China on the public goods provision in villages. Specifically, we use the dummy that "Is there any large lineage accounts for more than10%households in your village?" to mesure the lineage network in the village and the dummy that "Whether or not your village has experienced any direct elections?" to mesure the grassroot democracy in the village. In order to fully understand the interaction about informal institution and formal institution and their effect on public good provision in rural China, we explore how these two dummy which discribe the informal and formal institution in the village community, affect the public good provision in community level and village level. We found that if the village has some large lineage, have accounted for more than10%of the most popular clan village, the provision probability of Taoist abbey and temple and family ancestral hall significantly increased. We scrutinize the number of the large clan in the village and find that as the number of large clans increase from zero, the provision probability of Taoist abbey and temple increasing first and then diminishing, such kind of nonlinear relationship seems like a "inverted U-shape". What’s more, If village has experienced direct election, the provision probability of Taoist abbey and temple, sports stadiums and information board increase significantly. Lineage network does not affect the provision probability of infrastructure construction such as natural gas pipeline, tap water pipeline and cellular phone base stations and so on, while grassroot democracy in village significantly and remarkably increase the provision probability of the infrastructure construction.To sum up these abundant interesting empirical findings on the public good provision in rural China, we believe that there exists substantial difference between the informal institution such as vlllage’s lineage network and the formal institution such as the direct election. Our findings suggest that the provision mechanisms on public good provision between the community level and the village level also have considerable differences. Because the villagers have greater right of discretion in the decision-making of community level public good provision, it is reasonable that the lineage network have an impact on the community level public goods provision instead of the village level infrastructure construction. It is also intuitional that the direct election has a significant positive impact on the village level infrastructure construction. So we gradually in-depth reveals the effect of the lineage network and the direct election on the public goods provision in villages by exploring these cases to comprehensively understanding the development and institutional change in rural China.Third, although the lineage network of the village is not influenced by the villagers’ dicision, it may be influenced by some historical and geographical conditions of the village. These omitted variables may bias our estimation results mentioned above. Because the historical migration of the village can directly affect the present lineage network but cannot directly affect the present public goods provision, we can take advantage of the information of historical immigration to find some instrument variable for the lineage network in villages. We march the CFPS2010village data with the district-level population density data in1820as our instumental variable I, and with the province-level proportion of immigrant in1776as our instrumental variable II. The IV regression results basically remain the same and the conclusions about the public good provision mentioned above are confirmed again.We regard peasents’ credit level as the private good they enjoyed and the public good provision in their villages as the public good they enjoyed, our conclusion profoudly depict the influence of the informal institution such as the lineage network and the formal institution such as the rural finance regularization and the direct election in villages on peaseats’ individual welfare during transformation period nowadays. We also examine the interaction between the informal institution and the formal institution to better understand the path-dependence during the institutional transition.
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