1. Fresh Cadres, Fresh Air? Personnel Control, Institutions, and China's Water Pollution (joint with Nan GAO), conditionally accepted by the Review of Development Economics.
Weak law enforcement is usually blamed for the dramatically deterioration of environment in China. Using a panel data covering 287 Chinese prefecture-cities during 2004-2011, we investigate the role of local officials turnover and institutions in improving law enforcement and mitigating water pollutions. We show that water pollution deteriorates with the tenure of incumbent mayors, mayors’ turnover and institutional quality, e.g., executive constraints, are associated with lower pollution, and personnel turnover and institutions complement with each other in mitigating pollution. We also suggest some channels through which personnel turnover affects water pollution: personnel turnover undermines collusion between local officials and polluted firms, stimulates subordinates to exert more efforts to implement environmental policies, and might cause policy discontinuities. In general, we illustrate that cadre’s turnover has only limited and temporary effects in law-enforcement.
2. Social Interactions, Internet Access, and Stock Market Participation: An Empirical Study in China (joint with Shiqi GUO), accepted by the Journal of Comparative Economics.
Social interaction plays an important role in transmitting relevant information to potential investors. However, the informational role of social interaction might be affected by other information channels, which is to a large extent ignored in previous studies. Using a new household finance survey data covering more than 8,000 Chinese households, we investigate the role of social interaction in individual stock market participation decisions. We find that a better access to Internet and high degree of social interaction both increase stock market participation, but they substitute for each other. In particular, for households with the access to Internet, having the degree of social interaction above the median level in effect is associated with a 6 percentage points decrease in the probability to participate stock market. This finding supports the informational effect of social interaction. Moreover, we also identify a social multiplier effect of social interaction: sociable households living in the communities with higher stock market participation are more likely to invest in stocks.2013, Games and Economic Behavior, Vol. 82, 15-30.
I study the optimal design of delegation rule when a principal has to delegate to an informed agent via a strategic intermediary. I show that when the subordinates have opposing biases, the optimal delegation set will involve a "hole": some modest options are precluded. This may shed some new lights on policy threshold effects: small changes in the underlying state cause large policy responses.
4. Exit and Voice: A Game-Theoretic Analysis of Customer Complaint Management
2013, Pacific Economic Review, Vol. 18, 177-207.
This work uses mechanism design theory to investigate business management problem. Motivated by the evidences from marketing research, using a multiagent-principal communication game model with voluntary participation constraint, I analyze how to design a mechanism that elicits and aggregates information from informed, strategic consumers, and retains customer base. The model predicts low complaint/dissatisfaction ratio, costly complaint, weak relationship between complaints and objective failure, and a variety of complaint management strategies, which are largely in line with the empirical findings.
5. A Game of Thrones: Power Structure and the Stability of Regimes (with Ruixue JIA), 2014, in Karl Warneryd (Eds) The Economics of Conflict: Theory and Empirical Evidence:: Cambridge: MIT Press, pp. 79-103.
6. Decentrlization and Military Coups (with Ruixue JIA), 2012, in Chen Bo, Manas Chatterji, Hou Na (Eds.) Contributions to Conflict Management, Peace Economics and Development: Cooperation for a Peaceful and Sustainable World, Part 1:: Vol. 20:: London: Emerald Publisher, pp 149-170.
Power Struggle and Government Oversizing: Unintended Consequences of Checks and Balances in a One-Party Regime (joint with Nan GAO, Philip KEEFER, Lixin Colin XU)
One of the central themes in political economy is how power arrangements among ruling elites shape policy outcomes. This paper argues that under weak legal systems, the need to preserve power balance within local leadership might cause inefficient targeted redistribution towards bureaucratic interest groups, consequently government oversizing. We exploit the institutional features of Chinese Communist Party local standing committee (SC), the de facto decision-making body in each level, and construct an index to describe the constraints on the power of heads (Party secretaries) imposed by other SC members. We develop a simple bargaining model to formulize the logrolling within the SC, and derive the predictions regarding the number of senior cadres and the power structure within the standing committee. The empirical results support our main theoretical predictions. It is shown that more internal constraints on secretaries are associated with the increasing senior cadres. However, the secretary’s external power status significantly mitigates this influence. These results are robust against a variety of specifications and estimation strategies. We also rule out alternative explanation of our empirical results, and discuss other channels through which the power of secretary might affect the balance among local political elites. Our theory and empirical results suggest that it is better to consider the Chinese subnational leadership as a collection of agents, and the power struggle within them play an important role in policy outcomes.
Love Me, Love My Dog: An Experimental Study on Social Connections and Indirect Reciprocity (joint with Juanjuan MENG), Under Review.
reciprocity refers to the behavior in which, upon receiving a transfer from a
donor, the recipient is willing to repay a third party beneficiary in a one-shot
interaction. Our lab experiment shows that the recipients’ repayment to the
beneficiaries increased significantly when beneficiaries and donors had prior social
connections, especially when the donor was generous initially. This effect is
not from social connections implicitly revealing donors’ expectations, as a
structured message from the donors asking for favorable treatment of the beneficiaries
did not affect the recipients’ transfers. Altruism with an endogenous reference
group is the promising theory to explain the role of social connections.
Transfer of Authority within Hierarchies, Revise & Resubmit.
Government Structure and Military Coups (joint with Ruixue JIA)
Favor Transmission under Social Image Concerns: An Experimental Study (joint with Juanjuan MENG)
Persistent Mistrust towards Intellectuals among the Old-Three-Generations: A Legacy of the Cultural Revolution (joint with Jiajia LI)
Work in Progress
Optimal Hierarchical Delegation with the Possibility of Skip-level Intervention.
A Field Experiment on Social Distance and the Willingness to Help (joint with Fangfang TAN, Erte XIAO)