Local Government Behavior In Institutional Change And Reform Performance Analysis

One of the outstanding characteristics of China's institutional transition is that local governments play a special and important role in China's transform from planned economy to market economy .During the initial stage of reform ,the main stream was decentralization and transferring power to lower level 晈hich enabled local governments to have more decision-making power on personnel matters, routine work and finance, and to have independent economic benefits. This upset the institutional balance under the former planned economy. Hence, local governments gained the capacity and motive of institutional transition and became real suppliers of institutional transition, and became real suppliers of China's new institution. This article mainly studies the behavior of local i~overnments in China's economic transition. On the basis of former research ,this article tries to make a further study to the game among local governments ,central iovernment and micro-bodies, and analyze how the behavior of local governments push forward or prevent China's reform and make effects on cfficiency, and predicts the future institutional transition of China. In the game with central government and micro-bodies, local governments formed and enforced its principal status, pushing the reform forward. But scanning the whole process of reform, we can find that local governments played different roles during different periods of reform 1. Before the reform, high centralization decided only central government could start reform. At this time, local governments were in a subsidiary and passive position. But in the game between central government and micro-bodies. the reform would come to a deadlock without the participation of local 2overnments, because of North Paradox. 2. Central government wanted both to settle North Paradox and to avoid severe shock, so it took a ~vise measure of making experiments in selected areas. From then on, local governments came on the reform stage as the principal part of institutional transition. The pattern of reform, was central government transferring power to lower level-local governments making institutional innovations spreading to the whole country. But during this period, local governmentsinstitutional innovations were still restrained by central government. Non-experimental areas could not break the entry barriers set by central government. The utility indifference curve of reform was somewhat improved. but did not achieve the desired results. 3. Along with the abating of planned economic ideology and the deepening of market economic reform, local governments possessed more decision-making powers. When they estimated the probability of punishment to their institutional innovations was small, they would break through the limitation of central government and make institutional innovations on great scale .At the same time, central government changed its objective function. It realized that the strengthen of economic vitality could not shake but could enhance its authority on sovereignty. Thus, the pattern of reform changed to: local governments making institutional innovations central government confirming subsequently spreading to the whole country. The reform was making big strides forward. 4. As market economy was being perfected and modern enterprise system was set up, micro-bodies became...