The paradox of power principal-agent problems and administrative capacity in Imperial China (and other absolutist regimes)
Ma, D.
& Rubin, J.
(2019).
The paradox of power principal-agent problems and administrative capacity in Imperial China (and other absolutist regimes).
Journal of Comparative Economics,
47(2), 277-294.
https://doi.org/10.1016/j.jce.2019.03.002
& Rubin, J.
(2019).
The paradox of power principal-agent problems and administrative capacity in Imperial China (and other absolutist regimes).
Journal of Comparative Economics,
47(2), 277-294.
https://doi.org/10.1016/j.jce.2019.03.002
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.