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Collusion and Economic Growth: A New Perspective on the China Model

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  • Nie Huihua
  • Jinbo Li

Abstract

In this paper we propose a political-economy model of China that explains both the rapid economic growth frequent rate of accidents that have occurred in China. The central government delegates authority to the local government to regulate the production activities of the firm. Under information asymmetry the local government can collude with the firm choose “bad” technology the use of which will lead to faster economic growth more accidents than the use of “good” technology. We characterize optimal equilibrium within collusion contracts under which the central government will allow collusion when the cost to eliminate collusion is high. We also characterize the optimal collusion-proof contract under which the payments reprimands taxes that take place between the local government the firm are endogenously determined. Our predictions on collusion growth are supported by an empirical study on the coal industry.

Suggested Citation

  • Nie Huihua & Jinbo Li, 2013. "Collusion and Economic Growth: A New Perspective on the China Model," Economic and Political Studies, Taylor & Francis Journals, vol. 1(2), pages 18-39, July.
    • Handle: RePEc:taf:repsxx:v:1:y:2013:i:2:p:18-39
    DOI: 10.1080/20954816.2013.11673858
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    Cited by:

    1. Limei Ma & Qianying Wang & Dan Shi & Qinglong Shao, 2023. "Spatiotemporal patterns and determinants of renewable energy innovation: Evidence from a province-level analysis in China," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-14, December.
    2. Pi‐Han Tsai & Yongzheng Liu & Xin Liu, 2021. "Collusion, political connection, and tax avoidance in China," Kyklos, Wiley Blackwell, vol. 74(3), pages 417-441, August.
    3. Zhou, Mengling & Wang, Bing & Chen, Zhongfei, 2020. "Has the anti-corruption campaign decreased air pollution in China?," Energy Economics, Elsevier, vol. 91(C).

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