| Modern economy is a mixed system knitted by economic activities of government and those of private entities. Under the circumstance where there is market failure or private sector lacks incentive to invest, government is required to intervene to improve efficiency and utility of the whole system. Even in the most mature market economy existence of government investment is justified as catalyst and complement to private investment.But government failure emerges and grows as government deepens its economic participation. Due to diversified social preference and pressure from different interest groups, government is not poised to reach maximization of the whole social utility. In addition investment decision-making that more or less reflects personal interests and incentives of those decision makers further impair efficiency and effectiveness of those investments. Interest group, rent seeking, bureaucracy and low efficient investment are all the typical results from government failure.Aiming at improve efficiency of government investment this thesis focuses on institutional issues of government investment supervision in China by introducing philosophy and approaches established by western public choice scholars into framework design and discussion.Based on the double principal - agency relationship in government investment which for the first time theoretically explains widely existing problems in government projects such as misuse of public funds, bad decision making and low execution quality, a new approach to government investment supervision in China is derived by combining Chinese practices and advanced experiences of World Bank, ADB and many developed nations including Germany, US, Japan and UK. Supervision procedure, monitoring system, performance management and other basic elements needed in a well-functioning government investment supervision system are discussed in this thesis which is a bold exploration in institutional reform of Chinese government investment.
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