Research Of The Relationship Between Clan System And Principal-agent Relationship In Huizhou Pawnshops

Prosperity of Huizhou pawn shops made the phenomena that one businesses man owned many shops or ran shops of different industries common, which gave birth to principal-agent relationship inside Huizhou pawn shops. However, maintenance of such kind of principal-agent relationship needed some conditions. During Ming and Qing dynasty, the law institutions were not complete. Under this situation, how could the principal-agent relationship in Huizhou pawn shops get work and play a significant role in its development? With this question in head, the author got the conclusion that clan system played the role of law institutions in maintaining the principal-agent relationship in Huizhou pawn shops through reading lots of articles and books, and used the Game Theory Model to testify it.In its long history, pawn industry has fortunately maintained its upward trend, and developed into its prime during Ming and Qing dynasty. In the whole industry, Huizhou pawnshops topped the list, which made them famous all around the nation. As to the reasons, we can divide it into two aspects, the objective part and the subject part. During Ming and Qing dynasty, silver became increasingly useful, and the government itself also adopted some supportive policies, which objectively gave the foundation of development for pawn industry. As to the subject aspect, the special natural and geographical environment gave birth to the unique Xin'an culture, which made the whole group of Huizhou Businessmen united together to realize common prosperity and at the same time provided the common ethical code for them in business and saved their transaction costs, We can say that it's the Xin'an culture which made long-time prosperity possible for the group of Huizhou Businessmen.Usually, the Huizhou businessmen who ran the pawnshops also ran other businesses and there were always many shops owned by one merchant, so it was definite that Principal-agent relationship would appear in the pawn industry. During Ming and Qing Dynasties pawn industry has already formed a strong hierarchy management system. Although the job title varied in different districts, generally speaking, apart from the owner himself, it could be divided into five parts, four levels. Followed by the manager, called "Waixi"," Waique" and" Neique"," Zhongque", as well as apprentice, with each finished their own job and collaborated with each other, they accomplished the myth of hundreds of years.Changing of dynasties offered to Huizhou many migrants, who brought with them the pure Gentry Culture. After sew it in the soil of Huizhou, people in Huizhou reaped more dynamic culture of Patriarchal clan, which was more institutionalized than the original one. The more institutionalized culture system became the Code of conduct for Huizhou people. Huizhou businessmen could attribute their significant success to this unique culture. Without mentioning other more obvious functions it has played in the success of Huizhou businessmen, this article focused on the role it had played in the maintaining of Principal-agent relationship in the pawn industry. The clan system not only saved transaction costs for the forming and maintaining of principal-agent relationship, but also increased the punishment cost for breach of contract, thus, guaranteed the operation of this relationship. It provided to the pawnshop owned by Huizhou businessmen common beliefs and norms, rules, and also established organizations, such as the ancestral temple and genealogy to guarantee that these norms and rules would be obeyed. As historical heritage, ancestral temple and genealogy of Huizhou characteristics, has no less power than laws and policies inside the clan group. The existence of these organizations made the punishment mechanism inside the clan more convincing. Therefore, even if under the rational person hypothesis, the increase of punishment cost and the existence of relatively perfect punishment mechanism would oppress people with opportunistic tendency inside the pawnshops of Huizhou to make the choice of obeying the contract.Game Theory Model is more obvious for cost-benefit analysis. This article uses the simple Game Theory Model to analyze the cost and benefit of the two parts of the Principal-agent relationship inside Huizhou pawn industry, getting the conclusion that rational people with opportunistic tendency would choose to break the contract. However, adding clan system as an external influential element, we could see that obeying the contract would be the equilibrium solution. And loosen the restrictions a little bit more, we can see the stronger the power of clan system, the more it can do for maintaining the principal-agent relationship. The special statue of clan system at Huizhou district would make it powerful enough to provide high enough punishment cost. Thus, we can see clearly the role clan system could play in the maintenance of the principal-agent relationship inside Huizhou pawn industry.