An Institutional Analysis Of Intergovernmental Competition In Horizontal Side

The horizontal side of jurisdiction intergovernmental competition can induce many unfavorable outcomes, such as the local authority separating local market, the local authority protecting their economy benefit in the area of jurisdiction and so forth. These behaviors could be consider as local government want to proceed from the consideration of optimizing their own jurisdiction earnings which results in unfavorable localization of factor allocation and protection of local markets. In reality, these behaviors and unfavorable outcomes will harm the completed market, the development of the regional area in balanced, and with some social efficiency loss. Therefore, it is necessary to understand intergovernmental competition relationships, and unfavorable outcomes which are induced by intergovernmental competition. So this article asks two questions below, from the perspective of the institution, what is the most important reason. And from institutional perspective, how can we establish a competition institutional system which we can standardize the competition relationships.This article uses the Transaction Cost Economics(TCE) and the agency theory as the analytical tools. The author found that practical administrative system and external system environment are leading local governments to proceed from the consideration of optimizing their own jurisdiction earnings which results in unfavorable localization of factor allocation and protection of local markets. Therefore, we must consider countermeasures for the above mentioned problems from the perspective of institutional factors, so as to turn unfavorable outcomes of local government competition into favorable ones.