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

Author

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  • Chau, Nancy H.

    () (Cornell University)

  • Qin, Yu

    () (National University of Singapore)

  • Zhang, Weiwen

    () (Zhejiang University)

Abstract

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.

Suggested Citation

  • Chau, Nancy H. & Qin, Yu & Zhang, Weiwen, 2016. "Leader Networks and Transaction Costs: A Chinese Experiment in Interjurisdictional Contracting," IZA Discussion Papers 9641, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp9641
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    References listed on IDEAS

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    More about this item

    Keywords

    transaction cost; government leader network; interjurisdictional contracting;

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • P35 - Economic Systems - - Socialist Institutions and Their Transitions - - - Public Finance
    • R52 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Land Use and Other Regulations
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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