Transition Period, The System Of Non-equilibrium Study

This paper mainly uses theories of the New Institutional Economics and Game Theory to analyze problems of institutional disequilibrium in China's transition to a socialist market economy. Institutional disequilibrium means that institutions supplied and institutions demanded are not in balance, while institutions are not in harmony with each other. There are different criteria to classify institutional disequilibrium. It can be divided into institutional supply shortage and institutional supply excess, into sum disequilibrium and share disequilibrium or into general disequilibrium, partial disequilibrium and structural disequilibrium. Changes in institutional costs, revenue and the set of institutional choice may cause some institutions to become disequilibrium, so do changes in the powers of different interest groups. Moreover, institutional disequitibria may be made to be persistent by the following factors such as lack of social science knowledge, asymmetric information and rights, lags of institutional change and so on. Since potential profits cannot be internalized in the existing institutions, institutional disequilibrium may often leads to economic inefficiency and inequality. As far as China is concerned, it is now experiencing the transition from the planning economy to a socialist market economy. China's institutional disequilibrium in this time period has its own characteristics in extents, forms, effects and causes. In China, the high political and ideological cost of institutional innovation is one of the most important causes of institutional disequilibrium. Moreover the lack of effective constraints on excessive expansion of government powers is a factor that should be paid great attention to when considering the excessive supply of institutions. Of course other factors such as free-riding, institutional innovation lags and so on also play some roles. Since institutional disequilibria in this period do great harm to economic efficiency and equality, it is urgent that some effective measures should be taken to cope with this situation. First, in order to increase effective institutional supply, to construct a free system of institutional innovation and lower the costs of institutional innovation are both needed. Second, great efforts should be made to constrain excessive expansion of government power. In addition, other measures are also discussed in this paper.