Institutional Overcapacity:Modeling Analysis In The Perspective Of Externalizing Internal Cost

The overcapacity problem in China has been in the economic development of the normalization problem. From the current situation in China, The overcapacity problem is intensifying, it has not only limited to traditional industries such as steel, cement, plate glass and aluminum, wind power equipment, polysilicon and other emerging industries have also appeared serious phenomenon of overcapacity.The phenomenon of overcapacity formed a large number of invalid production capacity. It is not only lead to enterprise stock increase, benefit decline, the market vicious competition, resources serious waste, but also causes serious environmental pollution, aggravates economic fluctuation risk. In order to fundamentally governance overcapacity, it is necessary to study the cause of overcapacity. There are already many research results about the cause of this phenomenon at home and abroad, but most of them tend to start from the market factors. The premise of assumed condition is comparative perfect market economy. Market plays the role of resource allocation in the process of economic operation, but these are not the same as the economic situations of China, which is transition economy. In addition to market factors, institutional factors in the allocation of resources also play an important role in the process of our economic operation. Therefore, considering institutional factors on the influence of the allocation of resources is inevitable, when we explore. The issue of China’s economic. Institutional overcapacity problem has always been one of the hot China’s economics research issues. Institutional factors on the influence of the overcapacity method change with the economic system change ceaselessly. Direct intervention, such as government-enterprise integration and local government administrative market segmentation, in the economy capacity has been largely weakened,but indirect intervention of local government economy ability are highlighted, especially the intervention of factor markets, whose ability causes phenomenon of externalizing internal cost. By the normative analysis and empirical analysis, this paper attempts to study formation mechanism of Chinese institutional overcapacity in perspective of "externalizing internal cost " externalizing internal cost involves two aspects of the local government and factor market. This article through the local government behavior tries to explore the motive of local government externalizing internal cost,the behavior of "externalizing internal cost "by using factor markets and explain the influence of externalizing internal cost to overcapacity by using dynamic model. It eventually constructs the causal chain:local government behavior-externalizing internal cost on factor market-overcapacity. This provides a train of thought about governing overcapacity.This paper research content is mainly divided into five parts. The first part is the introduction. It discusses the research background, purpose and significance as well as the research methods. The second part is Relevant concepts and theories Summary.It elaborates many research results about the cause of overcapacity and analysis the inadequacies of research results.This part also elaborates some theory origins of "externalizing internal cost "and puts forward this research ideas of this paper. The third part is local government behavior and externalizing internal cost. It analyses the motive of local government externalizing internal cost by the public choice theory. It also explains why local government can be externalizing internal cost and how local government externalizes internal cost by factor market. The fourth part is how externalizing internal cost influences overcapacity. Building mathematical model explains the influence in this part. The model is divided into two stages. The first stage is that the capacity is forming. It analyses what role externalizing internal cost plays in this stage. The second stage describes the competitive behavior of enterprises in industry with overcapacity by tournament model. Externalizing internal cost changes the competitive behavior of them. It not only emphasizes market competition, but also chasing the degree of externalizing internal cost. The fifth part is policy recommendations. According to the analysis of previous parts, this part puts forward some policy recommendations, what aim at all stages of the process with overcapacity forming.