The Costs Analysis In The Institutional Transformation

Institutions matter. However, the existence of the system and its operation have a cost, and the reform of the institution and its innovation also need the costs. Over the past 30 years, China has experienced the reform and opening up as well as system reform and innovation.Although we have a number of major institutional and systemic reforms which have had tremendous success, there are also many cases of abortion and failures.In particular, the progress and effectiveness of the institutional reform and innovation of different types vary greatly in different times,different regions. Some of the reforms progressed smoothly, while others are twists and turns; Some are widely praised, and some are protested repeatedly; Some got his wishes, and some backfire; and so on, We can not help thinking:Why do the reform and transformation of different systems have different results and consequences? What are the reasons for different outcomes and consequences? In this paper, we take the reform of rural institutions in Hubei Province for example, Attempting to analyze and interpret it from the following perspective such as economic costs, political costs, social costs and cost-sharing mechanism.The introduction describes the research methods and the origins of research topics. Institutions matter.New institutional economics thinks that the expected profit is greater than the expected costs is the driving force of institutional change.But it doesn't make it clear that when the expected profit is less than the expected costs,can the institutional transformation take place successfully. In this Paper we make the conclusion by researching the reform of rural institutions in Hubei that if they can establish a reasonable cost-sharing mechanism to achive the cost internalization, to minimize the cost, to achieve a balanced cost-sharing,it is possible to realize the system transformation.The first chapter analyzes China's Rural Reform. The rural reform with merge features is a kind of behavior in response to "people's communes" political ideals movement and the local impact of financial pressure, But it did not realize the change from total government to service government. While the rural reform in Hubei is not only a administration reform,whose "yi qian yang shi " mechanism is also a recycling system of rural public services, achieving the change from total government to the service government.The second chapter analyzes the economic costs of the township reform. The direct difficulty facing the township reform is economic cost, that is, the cost of institutional transformation. It mainly includes diverting financial compensation, social security costs, costs of resolving the rural history debts and the revocation and duplication costs,which is the economic costs facing the current rural reform.In the case of financial difficulties in local government, central government should increase financial input in order to share the economic costs of reform.The third chapter analyzes the political costs of the township reform. "Reformers have always been to no good end," Which is the political costs faced by individual reformers; Meanwhile, the social stability caused by the reform will affect the Government's legitimacy and recognition, which is also the political costs faced by the township reform. The central government should offer protection,support, encouragement to local reformers to share the political costs of reform and resolve the political risk.Chapter IV analyzes the social costs of the township reform. The township reform bring great pressure on individuals and society. After the reform the reformed people lost the system interests, leading to re-employment problems causing the decline of living standard and low compensation leading to the relative deprivation of development ability,in addition to suicide, petitions, and even unrest affecting social stability. This is the the social costs of the rural reform. That the government help the laid-off workers're-employment and establish a sound social security is an effective way to resolve the social costs.Chapter V:Discussion and Conclusion. The rural reforms have financial cost pressures, political risk and certain social consequences, Although there is some difficulty in resolving the risk of reform, but it is very usefulto promote the socio-economic development and upgrade the government identity. Therefore, reform should be a reasonable cost-sharing for the benefit of promoting rural reform. From Hubei's case, we have come to the conclusion that a reasonable system of cost-sharing is possible condition for the success of the system transformation.