The Research On Chinese Local Government’s Regulation Behavior And Impact Analysis On Industrial Efficiency

With the process of administrative decentralization between central government and local government, China experienced a period of rapid economy development. On the other hand, local governments perform an inclination of regulation power abuse. Contrary to the laws of the market mechanisms, typical behaviors of local government are market segmentation, over taxing or over protection to industry, short-term behavior, etc. These kinds of performance post a challenge to existing theory explanation The development of behavioral economics and antitrust economics and the theory of government regulation offer research tools to open the "black box" of the government decision-making process.This dissertation is trying to construct a framework to study regulation behavior of local government. In the nature of bounded rationality, local offcials perform regulation behavior in their own characteristics. By study goal system and the behavior patterns, theises noticed the regulation externality that the local government restricts market competition by administrative power abuse. Analyzed the mechanism that how the government regulation behavior affect the industry development, and measured the efficiency of the typical different industries, this dissertation put forward the corresponding optimization measures for the reform on the local government regulation.This dissertation is divided into five parts. The first part is the introduction, in which some basic concepts are defined, literature are listed and reviewed to make clear the research background. The second part is Chapter2,3and Chapter4. The main work of this part is to study regulation behaivor form prospectives of goal system, common agency and general equilibrium in competition. Research on the goal system of local government described the behavioral inclination of local government. Study reveled that the local government offcials got the nature of Bounded Rationality and the externalities can’t be ignored. The third part is composed by Chapters5and6.This part disscuss the time inconsistency of local government regulation. Reaearch focus on the irrational behavior of local government such as betrayed regulation commitments, corruption and inter-session opportunistic behavior. The fourth part, Chapter7and8, indicates how the government regulation behavior handcap the market mechanisms and the industry efficiency. The fifth part is Chapter9, analyzed the interaction between regulation and industrial development, and made recommendations in the concluding remarks on the basis of the reform of local government regulation.Innovation of this paper is in the following waysFirst, reveal the the officials’ nature of bounded rationality and cognition bias of myopia and opportunistic This paper relaxs the assumption that local government decision-makers arc of rationality from the perspective of behavioral economics, and indicate that local officials bounded rationality derived from uncertainty, self-serving motives and the deviation between individual rationality and collective rationality Local government officials have the following propensity:compliance to superior administrative power, preference for short-term income, risk aversion and opportunism. The cognition bias of myopia is strengthened by the tenure system, assessment mechanisms, as well as the unique political life cycle of officials. By using hyperbolic discounting model, this paper makes the deduction that the time inconsistency of regulation may derived from the underestimation to the long-term costs and overestimation to current income. Local officials’regulatory policy formulation and implementation will be discretionary And special opportunistic behavior defined herein as inter-session opportunism This opportunistic tendency of government officials that derived from bounded rationality and incomplete contract is strengthened and enlarged by the tenure system and performance evaluation system. This opportunistic tendency lasted due to lacking of monitoring mechanisms and intergenerational retroactive compensation mechanisms. Deduction from the overlapping generation game model proved that this particular opportunism could be eliminated and cooperation of different sessions of local goverment could be achieved. Only can one decision-maker firstly made decision for long-term consideration out of altruistic move, the cooperation of sessions can be established in the basis of stable expectation and intergenerational retroactive compensation, and the sustainable development can be reached.Secondly, research revealed that local officials got intricate target system and changing utility function. From the perspectives of common agency and Multi-objective decision-making theory, this paper made the distinction between the goals and utility function of local government and those of central government. And reveal that the goals system of local governments got conflict and dynamic characteristics. Thesis made the original explanation of corruption:as a non-rational behavior, corruption derived from myopia cognition bias. In detail, the officials may underestimate the future long-term costs of corruption, overestimate short-term gains in the same time, so that act undue irrational wrongdoings contrary to the original intention. Research also focus on the the mechanisms how the factors such as risk appetite of officials and the structure of the utility function influence corruption behavior.Thirdly, this paper generalized the characteristics of local government regulation behavior and the manifestations of regulation externality. To study the competition among local governments by using general equilibrium model, we can find the differences in regulation behaivor of different local administration owing to endowment heterogeneity and different ways of decision-making The six characteristics of the local government regulation behavior are:1coexisting of both regulatory excessive and insufficiency;2selective regulation;3. the discontinuous regulation policy,4. the decentralization of economic regulation and centralization of social regulation system;5. the administrative monopoly;6. different level of government regulation with different behavioral preferences. Local governments often directly intervene pricing system, and relax social regulation to lower prices, lead to the non-market cost pricing. Enter and exit regulation also hinder technological progress.The increase in transaction costs is caused by market segmentation. Noted that the monopolistic behavior of some NGO which both as the regulatory agencies and market competitors at the same time. Described the interaction between the regional monopoly forces and industry monopoly power by study typical industries, this thesis recognized the reaction to the industrial development by government regulation, and described the changing power comes from the development of industrial organization.