Informal Institutions, Collective Action, and Public Investment in Rural China[*]
Yiqing Xu[†] Yang Yao[‡]
No. E2014001 April 23, 2014
Abstract: Do informal institutions promote good local governance in environments of weak democratic or bureaucratic institutions? This question is difficult to answer because of the challenges of defining informal institutions, measuring them, and identifying their effects. This paper attempts to address those challenges. We focus on informal institutions – the rules created and enforced by social groups – that could possibly facilitate local public goods provision and explore two mechanisms: (1) informal institutions help local leaders overcome the collective action problem of financing public goods and (2) informal institutions hold local officials accountable by providing extra incentives or better monitoring. Using a panel dataset of 220 Chinese villages from 1986 to 2005, we find that local public goods expenditure increases considerably when an elected village chairperson comes from the two largest family clans in a village and the association is stronger when clans appear to be more cohesive. We interpret these results as evidence that informal institutions of large clans facilitate local public goods provision. In addition, we show that the collective action mechanism is more plausible than the accountability mechanism in the context of rural China. Our finding is robust to alternative explanations, such as more capable leaders, changes of formal electoral rules, and strategic co-optation of the Chinese Communist Party.
Key Words: informal institutions, public goods expenditure, collective action, village elections, accountability
[*]The author are indebted to Tim Besley, Fotini Chirstia, Danny Hidalgo, Dan Mattingly, Rich Nielson, Jean Oi, Nancy Qian, Mike Sances, Jim Snyder, Lily Tsai, Jeremy Wallace, Haixiao Wang, and Teppei Yamamoto, as well as seminar participants at Peking University, University of Wisconsin-Madison, Massachusetts Institute of Technology, Harvard University, International Food Policy Research Institute, the 2014 annual conference of the Midwest Political Science Association, for helpful discussions and comments.
[†]Department of Political Science, Massachusetts Institute of Technology, email: firstname.lastname@example.org.
[‡]National School of Development and China Center for Economic Research, Peking University, email: email@example.com