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

Debin Ma and Jared Rubin ()

Journal of Comparative Economics, 2019, vol. 47, issue 2, 277-294

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.

Keywords: Administrative capacity; Fiscal capacity; State capacity; Principal-agent problem; Monitoring; Credible commitment; Absolutism; Limited government; Taxation; China; Europe; Qing Empire (search for similar items in EconPapers)
JEL-codes: N45 N43 H20 P48 P51 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:47:y:2019:i:2:p:277-294

DOI: 10.1016/j.jce.2019.03.002

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