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

45 Pages Posted: 18 Jan 2016

See all articles by Nancy H. Chau

Nancy H. Chau

Cornell University - School of Applied Economics and Management; IZA Institute of Labor Economics

Yu Qin

National University of Singapore (NUS) - Department of Real Estate

Weiwen Zhang

Zhejiang University - College of Public Administration; Columbia University - Columbia Earth Institute

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

JEL Classification: H11, H77, P35, R52, D23

Suggested Citation

Chau, Nancy H. and Qin, Yu and Zhang, Weiwen, Leader Networks and Transaction Costs: A Chinese Experiment in Interjurisdictional Contracting. IZA Discussion Paper No. 9641. Available at SSRN: https://ssrn.com/abstract=2716582

Nancy H. Chau (Contact Author)

Cornell University - School of Applied Economics and Management ( email )

Ithaca, NY 14853
United States
607-255-4463 (Phone)
607-255-9984 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Yu Qin

National University of Singapore (NUS) - Department of Real Estate ( email )

4 Architecture Drive
Singapore 117566
Singapore

Weiwen Zhang

Zhejiang University - College of Public Administration ( email )

268 Kaixuan Road
Hangzhou, 310029
China
86-571-8697-1987 (Phone)
86-571-8697-1987 (Fax)

Columbia University - Columbia Earth Institute ( email )

314 Low Library
535 West 116th Street, MC 4327
New York, NY 10027
United States

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