The Effect Of Decentralized Level On Property Rights Protection

Jurisdictional competition theory is the main explanation on the relationship between decentralization and property rights protection, which argues that the central government can keep behavior of local governments or officials within bounds to protect the private property right through introducing the competition mechanism among regions, where the local government can competes to develop economy or officials seek to compete for promotion after the implementation of decentralization. However, this argument remains unclear to answer a closely related question whether the decentralized level of administrative jurisdiction for countries with a multi-level local government influences the degree of property rights protection or not. The answer is affirmative in sectors where production factors can flow trans-regionally according to the jurisdictional competitiontheory;nevertheless, the answer is uncertain in sectors where production factors cannot flow trans-regionally.We argue that the answer to question above in China is definitely yes even in sectors where production factors cannot flow trans-regionally. An empirical evidence is the coal mine mergers and acquisitions project launched by central government from 2008 to 2013, which aims to remediatehighly frequent accidents and serious pollution problems through mergers and acquisitions of the small coal mine with the administrative jurisdiction the central government granted to the provincial government. We found that the degree of property rights protection showed a systematic difference, where all provinces with administrative jurisdiction decentralized to prefecture or county level function better in protecting property right of the private coal mine company comparing to others, which with administrative jurisdiction is only decentralized to provincial level. Such difference indicates that the decentralized level of administrative jurisdiction has a significant impact on the protection of property rights, even though the coal natural resources as the key production factor can not move transregionally. Accordingly, we argue that there is another mechanism besides the competition mechanism of protecting property rights, which we name it as vertical constraint mechanism discussed in this paper.The vertical constraint mechanism refers to the relationship between decentralization of administrativejurisdiction and property rights protection, where the decentralized level can significantly influence the degree of protecting property rights by changing the resistant cost of the private investor.More specifically, decentralizing administrative jurisdiction to prefecture or county level can more easily form a constraint to local officials by reducing the resistant cost of investors rather than decentralization to provincial level, which directly enhance the degree of property rights protection. However, this mechanism argued in this paper function conditionallyunder a certain circumstance, where the central government’s evaluation criteria to local governments or officials in policy implementing could neither deviate from the economic goal, nor completely targeted at economic goal.This paper will demonstrate the mechanism above by the theoretical model and hypothesis testing refined from the model, the case study of coal mine mergers and acquisitions project launched by central government from 2008 to 2013 can be critical evidence for exploring and testing the mechanism. In addition, we use the mergers and acquisitions project of oil&gas resources and other resources as additional cases comparing to the coal mine mergers and acquisitions project, in order to reveal the vertical constraint mechanism of property rights protection. Finally, this paper will make a conclusion and also discuss the further research direction on this topic in the future.