The Institutional Change Of China

This paper is aimed to explain the evolution of the government and the enterprise. It inspects the change of government behavior and the enterprise behavior in the frame of New Institutional Economics.The research to the relationship between government and market is the base of studying public policy, and its essential is to make clear how the government acts. In generally, there are many views to study the government action, and the economists are accustomed to consider the government should change his role successively along with the institutional change. In the beginning of institutional change the government constructs a basic market framework firstly, and then the government turns his function to protect the coordinated growth of nongovernmental department. After the nongovernmental department is advanced enough, namely, the market is ripe very much, the government begins to retire backstage and offset the market failure. They are the views of government propelling development, market promoting and market goodwill, which are made in the hinting hypothesis that the institutional change are certain and could be predicted. However, institutional change has the aspects of complexity and not being predicted of result, so the aim is random, which is important to the study of government action in the transition especially. Furthermore, the analysis about what the government should do obeys the original intention of economic interpretation. To economists, to research the public policy not only challenges but also suffers setbacks, so, both the process to design and the results of public policy are not according with the expectation of people.This paper insists on explaining the government behavior and the enterprise behavior in the frame of institutional change. Why public policy exists due to institutional reform and poverty gives rise to the desire for change, the fiscal and domination legitimacy pressure is the most important variables that led to institutional change. If we are going to observe the government behavior based on the fiscal pressure fluctuating period1y, we should make the transition from the theoretical hypothesis about the research of public policy.First of all, it is necessary to change the object of government behavior. The paper check out the change on the hypothesis of government behavior aims that economists put. First making the transition from the heaven model to the rational government model, then disintegrate the government into personal. Based on the maximization of government utility, we try to apply Darwinism to economics and give up the hypothesis which the rational person is similar. We point out emphatically that the authority has the unique character among the economics,politics and morals comparing with commons, so he gives especial play during the process of institutional evolution. In order to maximize its utility, the government will do different choice under the circumstance of fiscal pressure, which means government object is dynamic. So we can persist in the logic which is fundamental and running through the whole article. Generally, the value function is concave, and government is risk aversion while its fiscal benefit is certain. The value function is convex,government is risk seeking, while its loss is certain.This is the try that applying the research fruit of institutional economics into the study of the relationship between government and enterprise. In addition,the article apply the concept of government mental account on the base of human mental account used by behavior economics, and then modify the concept of the relationship under a frame of incomplete contract. The government mental account change according with the fiscal pressure rise and fall, so the policy will make corresponding changes.This paper insists on explaining economic performance objectively and instinctually refuses to do rational construction. However, the core task for the economist is to reveal objective law which led to some kind of institutional change. According to the theory, I study the government behaviors and the enterprise behaviors during 1978-2006 in China. It is a new kind of aspect to the economy reform of China.