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

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  • 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.

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  • 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
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    Cited by:

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    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).
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    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

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