Incentive Compatibility Of Legal System And Economic Growt

For a long time,there has been no conclusion about the extent to which institutions affect economic growth,but the idea that institutions can affect economic operation has been generally accepted by the academic community.However,the major problem in the research process is that the unified definition of “system” can not be formed,which leads to different meanings of “system” given by different research perspectives.As a result,almost all factors related to the economy can be included in various kinds of systems,which greatly reduces the ability of the system to explain changes in economic performance.As a formal system,the connotation and denotation of law can be clearly defined.Therefore,this paper chooses the legal system as the research object to analyze and demonstrate its specific influence and mechanism of action on economic performance.Different from the new institutional economics,which interprets the impact mechanism of institutions on economic growth through the analysis paradigm of internalizing institutions,this paper argues that this paradigm is weak in explaining the growth characteristics of developing countries,especially transition economies.This is because the rule of China’s system design,especially the change of the legal system,generally follows the basic logic of two-way interaction between “top-level design” and “crossing the river by feeling the stones”,and it is the combination of exogenous and endogenous institutions.Especially in the period of China’s economic transition,the market economy is not mature.Compared with the dual control resources of organization and economy owned by the government,micro-economic subjects have extremely weak control and negotiation power,which limits the possibility of endogenous system.On the contrary,many of the reforms on China’s gradual reform path are of an overall nature and can only be carried out gradually from top to bottom.Top-level design is the most effective institutional arrangement under the background of The Times.So,in different stages of development,the smooth realization of the economic growth targets is essentially due to the successful handling of the principal-agent problems among various stakeholders in the process of the layered decomposition of the economic growth targets,so as to promote the input of various factors to promote economic growth,and It is the optimal institutional arrangement of economic growth.Therefore,exploring how to achieve effective delegation through system design,especially the construction of legal system,may be the key to explain China’s economic growth miracle.In this paper,the “incentive” role of law as the main line of the article to launch research.And this paper believes that the “incentive compatibility” theory has strong universality in explaining the influence of legal system on economic growth,and can better answer relevant economic phenomena.The “incentive compatibility” of legal system means that if the incentive provided by the rule system constructed by law can make the actions taken by individuals out of consideration for their own interests exactly contribute to the realization of the goal of maximizing social welfare,it is called incentive compatibility.In other words,under the incentive compatible legal system,pareto improvement will be achieved when some people are motivated by rules to take actions and benefit from them,and the interests of others will not be damaged,and then economic growth will be achieved.On this basis,this paper analyzes the topic according to the following logic.Firstly,based on the facts of China’s economic growth under institution changes,this paper expounds the development goals,key institution changes and sources of factor growth in different development stages,and summarizes the multi-level principal-agent relationships formed by various stakeholders in the process of layered decomposition of economic growth goals.And finds that the key to the successful realization of China’s economic growth goals is incentive compatibility among stakeholders.Furthermore,the basic logic followed by China’s system design,especially the change of the legal system,and the particularity of the legal system in realizing the incentive compatibility state are summarized.On this basis,based on the principal-agent theory,this paper constructs theory model to explain the impact of incentive compatibility of the legal system on the economic growth,which is an insight into the nature of the theory of mechanism,and at the same time,this paper expounds the basic principle of realization of the legal system’s incentive compatibility,and the realistic approaches of legal system’s effect on economic growth from three perspectives of property right system,contract system and political system.Secondly,the constitution that affects economic growth on the whole level is selected as the object of analysis,and it is found that the “right standard”constitutional meta-rule can provide the premise and foundation for the establishment of incentive compatible legal system.The process of constitutional change since China’s reform and opening up has just established the right standard meta-rule.And through the innovation of property rights system and market economy system,it is the best choice for people to engage in more productive activities for their own interests.The historical facts prove that the constitutional meta-rule promotes the economic growth of China by establishing the overall framework of incentive compatible legal system.Thirdly,this paper uses theoretical analysis,historical facts,empirical tests and other methods to specifically analyze the mechanisms of legal system’s effect on the economic growth through the promotion of investment,human capital level and technological progress.In terms of investment promotion,the legal system mainly protects property rights and reduces transaction costs so that investors can obtain more certainty and higher income from investment,so that they will increase investment for their own interests.In terms of human capital promotion,the legal system can protect the rights of Chinese citizens to receive education,maintain the employment relationship,and protect the human capital property rights,and ensure that human capital investment can not only recover the cost and the parties involved to bring greater profits,and under the action of incentive compatibility,it promotes the human capital investment and accumulation.In terms of technology progress promotion,the legal system can give inventors exclusive rights for new technologies,and make sure that the benefits can be obtained by selling or licensing the use of new technologies,and by setting the exclusive rights of term,it also can balance the inventor monopoly profits and social benefits,thus realize both short-term and long-term incentive compatibility,so as to promote technological progress.Finally,this paper argues that the legal system based on the constitutional meta-rules of right standard promotes the continuous growth of Chinese economy by constantly realizing the incentive compatibility in the process of change,thus promoting the investment at home and abroad,human capital accumulation and technological progress.However,after entering the new normal,our country is facing with the incentive incompatibility state again in many aspects.The reform of more than 40 years has entered a critical period,and the pattern of interests is very complex.In order to continue to promote economic growth through the incentive compatibility of the legal system,on the one hand,we should look for the new direction of legal system change and expand the scope of legal system change to find the possibility of incremental reform.On the other hand,we should continue to adhere to the progressive legislative model to minimize the negative incentives that may be brought by breaking the original pattern in the process of legal system change.On this basis,this paper puts forward the paths and directions of the construction of legal system related to investment,human capital and technological progress.