China Pawn Institution Research

Pawn loan institution is weakening ever since the formation of modern credit system, but in perspective of the long human financial history, pawn loan institution is the earliest, longest-lasting, and had once been the most important financial institution arrangement, not only in China, but also in the world.From the perspective of comparative and historical institutional analysis, pawn loan institution embodies the core conception of "property as pledge" (I call it as "property loan", which is a contrast to credit loan institution (hereinafter referred to as "credit loan") that reflects the financing philosophy of "character as credit". The two institutions relate lending behavior with "property" and "character" respectively, as the guarantee of the implementation of "lending-repayment" rules. Then which financing institutional arrangement is superior? This may depends which institution has higher efficiency and lower risk, while the efficiency and risk are decided by the strategies of action of the borrower and lender, which are decided by a series of internal and external parameters. But from the perspective of institutional utilitarian philosophy of institutional economics, "self-enforcement" is the best institution, which embodies the voluntary principle of transaction, and internalizes the transaction cost. So what needs to compare is their applicability in different circumstances.This dissertation adopts the definition of institution by comparative and historical institutional analysis school, to study Chinese pawn institution, with credit institution as a contrast. The main subject is "the property of self-enforcing" of Chinese pawn transaction institution. The dissertation is divided into five chapters. The first chapter is the introduction, and the second is literature review, which is comments on the theories of economic institutions and their paradigms, the studies of lending institution based on mortgage, the empirical researches of Chinese pawn industry and its institution, and the review of legal systems for pawn in different countries. Chapter three is the part for theoretical explanation, analyzing the main factors affecting self-enforcing property of Chinese pawn transaction institution, and comparing "property loan" and "credit loan" institutions and their contradiction and blending. Chapter four studies the historical experience of Chinese pawn institution by reviewing the major elements of pawn institution in Chinese history (including traders, pawnage, conversion ratio, interest and fees, contract and its implementation), and the transition of these elements with the change of environment, as well as their final influence on the self-enforcement of pawn institution. Chapter Five is about the current inheritance and development of Chinese pawn institution, mainly studying the orientation and development of pawn transaction institution under the current financial situation in which the two different core conceptions of "property as pledge" and "character as credit" are merging with each other.The major findings of this dissertation are as follows.Firstly, whether pawn institution can "self-enforce", and whether the behavior of pawn transaction can implement by the equilibrium path of "deliver pawn-receive pawn-redeem pawn", are determined by the major "institutional elements" of pawn institution, in which "conversion ratio" is the decisive one. Through the theoretical and historical empirical analysis of Chinese pawn institution, this dissertation holds that Chinese pawn transaction institution has the property of self-enforcing, which is determined by two levels of conditions. The core conception of "property as pledge" is the first level, and the second is institutional factors including pawnage, evaluation, conversion, interest and fees, etc., all of which have jointly determined the property of pawn behavior in the long term, while in the short term only conversion ratio is the decisive institutional factor.Secondly, the comparative and historical analysis of "property loan" and "credit loan" shows that the property loan institution is determined by conversion ratio, while credit loan institution by "the cost of credit control". Credit control applies to people with credit, but those without credit can only turn to "property as pledge". Property is possible to lose value, and person may lose faith, so in a short run, different financing conceptions should be applied according to different environment and conditions. But in the long run, because reputation mechanics appears in repeated games, the factor of credit would gradually merge into the property loan transaction rules, therefore this blending and derivation bring about the financial prosperity.Thirdly, the historical experience of Chinese pawn transaction institution testifies that the institution is liable to deviate from the equilibrium path, influenced by the transition of pawnage, the irrational strategies of traders, conversion ratio, interest and fees, and contract. But Chinese core rule of "property as pledge" has been lasted and enhanced, which is a proof of the vitality of pawn institution's self-enforcing.Fourth, in the modern credit system, due to the credit abuse and supervision failure, financial turmoil emerges frequently, but the property loan institution has run fairly steadily throughout the history. When debts take property rights as "anchor", the key point is the leverage rate (actually it is true with money problem). This is just the contribution of historical wisdom of pawn institution to modern financial system. So it is necessary to determine the orientation and innovation of modern pawn industry on this basis.The major innovations of this dissertation are as follows.1. Based on the institutional utilitarian philosophy and the self-enforcing property of institution, this dissertation presents a comparative and historical institutional analysis frame about Chinese pawn institution, which introduces the behavior rules abut pawn loan behavior. Under the rule, the pawn institution has the property of self-enforcing. Meanwhile, the dissertation conducts the empirical research on the history of Chinese pawn institution by using this theoretical frame.2. Iin this frame, this dissertation points out that in the short term, whether a pawn loan behavior can self-enforce is determined by the strategic behavior------conversion rate; while in the long term, multiple institutional factors such as pawnage, trade participantes, interest and fees, conversion ratio, jointly determine the self-enforcing property of the transaction.