Leader Networks and Transaction Costs: A Chinese Experiment in Interjurisdictional Contracting

Published By: IZA Institute for the Study of Labor | Published Date: January, 01 , 2016

Do leader networks promote efficient intergovernmental contracts? We examine a groundbreaking policy in China where subprovincial governments freely traded land conversion quotas and investigate the role of leader networks on the boundary between jurisdictions that embrace trade versus autarky. Consistent with the presence of Williamsonian transaction costs featuring uncertainty, incomplete contracting, and asset specificity, we find that leader career networks facilitate trade, controlling for institutional similarity and prior trade relations. However, trade gains can be limited if leader networks offer selective coverage. Using data from the Chinese experiment, we find evidence consistent with trade match distortions induced by leader networks.

Author(s): Nancy H. Chau, Yu Qin, Weiwen Zhang | Posted on: Feb 07, 2016 | Views() | Download (197)


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