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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)," LSE Research Online Documents on Economics 100296, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:100296
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    More about this item

    Keywords

    absolutism; administrative capacity; China; credible commitment; Europe; fiscal capacity; limited government; monitoring; principal-agent problem; Qing Empire; state capacity; taxation;
    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 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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