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

Nancy Chau, Yu Qin () and Weiwen Zhang ()
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Weiwen Zhang: Zhejiang University

No 9641, IZA Discussion Papers from Institute of Labor Economics (IZA)

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.

Keywords: transaction cost; government leader network; interjurisdictional contracting (search for similar items in EconPapers)
JEL-codes: D23 H11 H77 P35 R52 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2016-01
New Economics Papers: this item is included in nep-cna, nep-net, nep-sea and nep-tra
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