IDEAS home Printed from https://ideas.repec.org/a/eee/jcecon/v47y2019i2p277-294.html
   My bibliography  Save this article

The Paradox of Power: Principal-agent problems and administrative capacity in Imperial China (and other absolutist regimes)

Author

Listed:
  • Ma, Debin
  • Rubin, Jared

Abstract

Tax extraction is often low in absolutist regimes. Why are absolutists unable to convert power into revenue? Supported by evidence from Imperial China, we explain this puzzle with a principal-agent model which reveals that absolutists, unconstrained by rule of law and unable to commit to not predating on their tax-collecting agents (and the masses), may find it optimal to settle for a low wage-low tax equilibrium, while permitting agents to keep extra, unmonitored taxes. Our analysis suggests that low investment in administrative capacity is a conscious choice for an absolutist since it substitutes for credible commitment to refrain from confiscation from its agents.

Suggested Citation

  • Ma, Debin & Rubin, Jared, 2019. "The Paradox of Power: Principal-agent problems and administrative capacity in Imperial China (and other absolutist regimes)," Journal of Comparative Economics, Elsevier, vol. 47(2), pages 277-294.
  • Handle: RePEc:eee:jcecon:v:47:y:2019:i:2:p:277-294
    DOI: 10.1016/j.jce.2019.03.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S014759671830194X
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.jce.2019.03.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Patrick K. O'Brien, 1988. "The political economy of British taxation, 1660-1815," Economic History Review, Economic History Society, vol. 41(1), pages 1-32, February.
    2. Xue, Melanie Meng & Koyama, Mark, 2018. "Autocratic Rule and Social Capital: Evidence from Imperial China," MPRA Paper 84249, University Library of Munich, Germany.
    3. Chiu Yu Ko & Mark Koyama & Tuan†Hwee Sng, 2018. "Unified China And Divided Europe," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(1), pages 285-327, February.
    4. Karaman, Kamil KIvanç, 2009. "Decentralized coercion and self-restraint in provincial taxation: The Ottoman Empire, 15th-16th centuries," Journal of Economic Behavior & Organization, Elsevier, vol. 71(3), pages 690-703, September.
    5. Greif, Avner & Tabellini, Guido, 2017. "The clan and the corporation: Sustaining cooperation in China and Europe," Journal of Comparative Economics, Elsevier, vol. 45(1), pages 1-35.
    6. Alberto Alesina & Enrico Spolaore, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1027-1056.
    7. Dari-Mattiacci, Giuseppe, 2013. "Slavery and Information," The Journal of Economic History, Cambridge University Press, vol. 73(1), pages 79-116, March.
    8. Timothy Besley & Torsten Persson, 2009. "The Origins of State Capacity: Property Rights, Taxation, and Politics," American Economic Review, American Economic Association, vol. 99(4), pages 1218-1244, September.
    9. Timothy Besley & Torsten Persson, 2011. "Pillars of Prosperity: The Political Economics of Development Clusters," Economics Books, Princeton University Press, edition 1, number 9624.
    10. Johnson, Noel D. & Koyama, Mark, 2017. "States and economic growth: Capacity and constraints," Explorations in Economic History, Elsevier, vol. 64(C), pages 1-20.
    11. Loren Brandt & Debin Ma & Thomas G. Rawski, 2014. "From Divergence to Convergence: Reevaluating the History behind China's Economic Boom," Journal of Economic Literature, American Economic Association, vol. 52(1), pages 45-123, March.
    12. Timothy Besley & Torsten Persson, 2010. "State Capacity, Conflict, and Development," Econometrica, Econometric Society, vol. 78(1), pages 1-34, January.
    13. Tuan-Hwee Sng & Chiaki Moriguchi, 2014. "Asia’s little divergence: state capacity in China and Japan before 1850," Journal of Economic Growth, Springer, vol. 19(4), pages 439-470, December.
    14. Philip T. Hoffman, 2015. "Why Did Europe Conquer the World?," Economics Books, Princeton University Press, edition 1, number 10452.
    15. Mauricio Drelichman & Hans‐Joachim Voth, 2011. "Lending to the Borrower from Hell: Debt and Default in the Age of Philip II," Economic Journal, Royal Economic Society, vol. 121(557), pages 1205-1227, December.
    16. Ma, Debin, 2016. "The rise of a financial revolution in Republican China in 1900-1937: an institutional narrative," Economic History Working Papers 65371, London School of Economics and Political Science, Department of Economic History.
    17. Nicola Gennaioli & Hans-Joachim Voth, 2015. "State Capacity and Military Conflict," Review of Economic Studies, Oxford University Press, vol. 82(4), pages 1409-1448.
    18. Acemoglu, Daron, 2003. "Why not a political Coase theorem? Social conflict, commitment, and politics," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 620-652, December.
    19. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
    20. Karaman, K. Kivan㇠& Pamuk, Şevket, 2013. "Different Paths to the Modern State in Europe: The Interaction Between Warfare, Economic Structure, and Political Regime," American Political Science Review, Cambridge University Press, vol. 107(3), pages 603-626, August.
    21. Rosenthal, Jean-Laurent & Wong, R. Bin, 2011. "Before and Beyond Divergence: The Politics of Economic Change in China and Europe," Economics Books, Harvard University Press, number 9780674057913, Spring.
    22. Balla, Eliana & Johnson, Noel D., 2009. "Fiscal Crisis and Institutional Change in the Ottoman Empire and France," The Journal of Economic History, Cambridge University Press, vol. 69(3), pages 809-845, September.
    23. Ma, Debin, 2011. "Rock, scissors, paper: the problem of incentives and information in traditional Chinese state and the origin of Great Divergence," Economic History Working Papers 37569, London School of Economics and Political Science, Department of Economic History.
    24. Ma, Debin, 2011. "Law and Economy in Traditional China: A "Legal Origin" Perspective on the Great Divergence," CEPR Discussion Papers 8385, C.E.P.R. Discussion Papers.
    25. Jan Luiten Van Zanden & Eltjo Buringh & Maarten Bosker, 2012. "The rise and decline of European parliaments, 1188–1789," Economic History Review, Economic History Society, vol. 65(3), pages 835-861, August.
    26. Sng, Tuan-Hwee, 2014. "Size and dynastic decline: The principal-agent problem in late imperial China, 1700–1850," Explorations in Economic History, Elsevier, vol. 54(C), pages 107-127.
    27. Friedman, David, 1977. "A Theory of the Size and Shape of Nations," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 59-77, February.
    28. Daron Acemoglu & James A. Robinson, 2000. "Why Did the West Extend the Franchise? Democracy, Inequality, and Growth in Historical Perspective," The Quarterly Journal of Economics, Oxford University Press, vol. 115(4), pages 1167-1199.
    29. Myerson, Roger B., 2008. "The Autocrat's Credibility Problem and Foundations of the Constitutional State," American Political Science Review, Cambridge University Press, vol. 102(1), pages 125-139, February.
    30. Acemoglu, Daron, 2005. "Politics and economics in weak and strong states," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1199-1226, October.
    31. Johnson, Noel D. & Koyama, Mark, 2014. "Tax farming and the origins of state capacity in England and France," Explorations in Economic History, Elsevier, vol. 51(C), pages 1-20.
    32. Timothy Besley & Torsten Persson, 2014. "Why Do Developing Countries Tax So Little?," Journal of Economic Perspectives, American Economic Association, vol. 28(4), pages 99-120, Fall.
    33. Chong-En Bai & David D. Li & Yingyi Qian & Yijiang Wang, 1999. "Anonymous Banking and Financial Repression: How Does China's Reform Limit Government Predation without Reducing Its Revenue?," Working Papers 99014, Stanford University, Department of Economics.
    34. Alesina, Alberto & Spolaore, Enrico, 2005. "War, peace, and the size of countries," Journal of Public Economics, Elsevier, vol. 89(7), pages 1333-1354, July.
    35. Joel Mokyr, 2016. "A Culture of Growth: The Origins of the Modern Economy," Economics Books, Princeton University Press, edition 1, number 10835.
    36. Roger B. Myerson, 2015. "Moral Hazard in High Office and the Dynamics of Aristocracy," Econometrica, Econometric Society, vol. 83, pages 2083-2126, November.
    37. Yadira Gonzalez de Lara & Avner Greif & Saumitra Jha, 2008. "The Administrative Foundations of Self-Enforcing Constitutions," American Economic Review, American Economic Association, vol. 98(2), pages 105-109, May.
    38. David K Levine & Salvatore Modica, 2013. "Conflict, Evolution, Hegemony, and the Power of the State," Levine's Working Paper Archive 786969000000000692, David K. Levine.
    39. Ma, Debin, 2012. "Political Institution and Long Run Economic Trajectory: Some Lessons from Two Millennia of Chinese Civilization," CEPR Discussion Papers 8791, C.E.P.R. Discussion Papers.
    40. North, Douglass C. & Weingast, Barry R., 1989. "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," The Journal of Economic History, Cambridge University Press, vol. 49(4), pages 803-832, December.
    41. Olson, Mancur, 1993. "Dictatorship, Democracy, and Development," American Political Science Review, Cambridge University Press, vol. 87(3), pages 567-576, September.
    42. Cukierman, Alex & Edwards, Sebastian & Tabellini, Guido, 1992. "Seigniorage and Political Instability," American Economic Review, American Economic Association, vol. 82(3), pages 537-555, June.
    43. Stasavage, David, 2016. "What we can learn from the early history of sovereign debt," Explorations in Economic History, Elsevier, vol. 59(C), pages 1-16.
    44. Besley, Timothy & McLaren, John, 1993. "Taxes and Bribery: The Role of Wage Incentives," Economic Journal, Royal Economic Society, vol. 103(416), pages 119-141, January.
    45. Haiwen Zhou, 2012. "Internal Rebellions and External Threats: A Model of Government Organizational Forms in Ancient China," Southern Economic Journal, John Wiley & Sons, vol. 78(4), pages 1120-1141, April.
    46. Turchin, Peter, 2009. "A theory for formation of large empires," Journal of Global History, Cambridge University Press, vol. 4(2), pages 191-217, July.
    47. Dincecco, Mark, 2009. "Fiscal Centralization, Limited Government, and Public Revenues in Europe, 1650–1913," The Journal of Economic History, Cambridge University Press, vol. 69(1), pages 48-103, March.
    48. Kung, James Kai-Sing & Chen, Shuo, 2011. "The Tragedy of the Nomenklatura: Career Incentives and Political Radicalism during China's Great Leap Famine," American Political Science Review, Cambridge University Press, vol. 105(1), pages 27-45, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Deng, Hanzhi, 2021. "The merit of misfortune: Taiping Rebellion and the rise of indirect taxation in modern China, 1850s-1900s," LSE Research Online Documents on Economics 108564, London School of Economics and Political Science, LSE Library.
    2. Yu Hao & Kevin Zhengcheng Liu, 2020. "Taxation, fiscal capacity, and credible commitment in eighteenth‐century China: the effects of the formalization and centralization of informal surtaxes," Economic History Review, Economic History Society, vol. 73(4), pages 914-939, November.
    3. Bo, Shiyu & Deng, Liuchun & Sun, Yufeng & Wang, Boqun, 2021. "Intergovernmental communication under decentralization," Journal of Economic Behavior & Organization, Elsevier, vol. 184(C), pages 606-652.
    4. Deng, Hanzhi, 2021. "The merit of misfortune: Taiping Rebellion and the rise of indirect taxation in modern China, 1850s-1900s," Economic History Working Papers 108564, London School of Economics and Political Science, Department of Economic History.
    5. Shuo, Chen & Ma, Debin, 2020. "States and Wars: China’s Long March towards Unity and its Consequences, 221 BC – 1911 AD," CAGE Online Working Paper Series 505, Competitive Advantage in the Global Economy (CAGE).
    6. Nick Cowen, 2019. "Markets for rules: the promise and peril of blockchain distributed governance," Journal of Entrepreneurship and Public Policy, Emerald Group Publishing, vol. 9(2), pages 213-226, September.
    7. Sergi Basco & John P. Tang, 2021. "Banks, Credit Supply, and the Life Cycle of Firms: Theory and Evidence from Late Nineteenth Century Japan," CEH Discussion Papers 02, Centre for Economic History, Research School of Economics, Australian National University.
    8. Fu, Tong & Jian, Ze, 2021. "Corruption pays off: How environmental regulations promote corporate innovation in a developing country," Ecological Economics, Elsevier, vol. 183(C).
    9. Yasin Arslantaş & Antoine Pietri & Mehrdad Vahabi, 2020. "State predation in historical perspective: the case of Ottoman müsadere practice during 1695–1839," Public Choice, Springer, vol. 182(3), pages 417-442, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jared Rubin & Debin Ma, 2017. "The Paradox of Power: Understanding Fiscal Capacity in Imperial China and Absolutist Regimes," Working Papers 17-02, Chapman University, Economic Science Institute.
    2. Johnson, Noel D. & Koyama, Mark, 2017. "States and economic growth: Capacity and constraints," Explorations in Economic History, Elsevier, vol. 64(C), pages 1-20.
    3. Ko, Chiu Yu & Koyama, Mark & Sng, Tuan-Hwee, 2014. "Unified China; Divided Europe," MPRA Paper 60418, University Library of Munich, Germany.
    4. Koyama, Mark & Moriguchi, Chiaki & Sng, Tuan-Hwee, 2018. "Geopolitics and Asia’s little divergence: State building in China and Japan after 1850," Journal of Economic Behavior & Organization, Elsevier, vol. 155(C), pages 178-204.
    5. Geloso, Vincent J. & Salter, Alexander W., 2020. "State capacity and economic development: Causal mechanism or correlative filter?," Journal of Economic Behavior & Organization, Elsevier, vol. 170(C), pages 372-385.
    6. Sng, Tuan-Hwee & Moriguchi, Chiaki, 2014. "Asia’s Little Divergence: State Capacity in China and Japan before 1850," CEI Working Paper Series 2014-6, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    7. Tuan-Hwee Sng & Chiaki Moriguchi, 2014. "Asia’s little divergence: state capacity in China and Japan before 1850," Journal of Economic Growth, Springer, vol. 19(4), pages 439-470, December.
    8. Chiu Yu Ko & Mark Koyama & Tuan†Hwee Sng, 2018. "Unified China And Divided Europe," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(1), pages 285-327, February.
    9. Ennio E. Piano, 2019. "State capacity and public choice: a critical survey," Public Choice, Springer, vol. 178(1), pages 289-309, January.
    10. Sng, Tuan-Hwee, 2014. "Size and dynastic decline: The principal-agent problem in late imperial China, 1700–1850," Explorations in Economic History, Elsevier, vol. 54(C), pages 107-127.
    11. Jesús Fernández-Villaverde & Mark Koyama & Youhong Lin & Tuan-Hwee Sng, 2020. "The Fractured-Land Hypothesis," NBER Working Papers 27774, National Bureau of Economic Research, Inc.
    12. Yu Hao & Kevin Zhengcheng Liu, 2020. "Taxation, fiscal capacity, and credible commitment in eighteenth‐century China: the effects of the formalization and centralization of informal surtaxes," Economic History Review, Economic History Society, vol. 73(4), pages 914-939, November.
    13. Baland, Jean-Marie & Moene, Karl Ove & Robinson, James A., 2010. "Governance and Development," Handbook of Development Economics, in: Dani Rodrik & Mark Rosenzweig (ed.), Handbook of Development Economics, edition 1, volume 5, chapter 0, pages 4597-4656, Elsevier.
    14. Deng, Hanzhi, 2021. "The merit of misfortune: Taiping Rebellion and the rise of indirect taxation in modern China, 1850s-1900s," Economic History Working Papers 108564, London School of Economics and Political Science, Department of Economic History.
    15. Karaman, K. Kıvanç & Pamuk, Şevket & Yıldırım-Karaman, Seçil, 2020. "Money and monetary stability in Europe, 1300–1914," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 279-300.
    16. Alexander William Salter & Andrew T. Young, 2018. "Medieval representative assemblies: collective action and antecedents of limited government," Constitutional Political Economy, Springer, vol. 29(2), pages 171-192, June.
    17. Shuo, Chen & Ma, Debin, 2020. "States and Wars: China’s Long March towards Unity and its Consequences, 221 BC – 1911 AD," CAGE Online Working Paper Series 505, Competitive Advantage in the Global Economy (CAGE).
    18. Becker, Sascha O. & Pfaff, Steven & Rubin, Jared, 2016. "Causes and consequences of the Protestant Reformation," Explorations in Economic History, Elsevier, vol. 62(C), pages 1-25.
    19. Timothy Besley & Ethan Ilzetzki & Torsten Persson, 2013. "Weak States and Steady States: The Dynamics of Fiscal Capacity," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(4), pages 205-235, October.
    20. Hector Galindo‐Silva, 2020. "External threats, political turnover, and fiscal capacity," Economics and Politics, Wiley Blackwell, vol. 32(3), pages 430-462, November.

    More about this item

    Keywords

    Administrative capacity; Fiscal capacity; State capacity; Principal-agent problem; Monitoring; Credible commitment; Absolutism; Limited government; Taxation; China; Europe; Qing Empire;
    All these keywords.

    JEL classification:

    • N45 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Asia including Middle East
    • N43 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Europe: Pre-1913
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies
    • P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jcecon:v:47:y:2019:i:2:p:277-294. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.elsevier.com/locate/inca/622864 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622864 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.