Events

Economics Seminar

Authors:

• Kim Sau Chung
  University of Minnesota and Chinese University of Hong Kong

• Jiahua Che
  Chinese University of Hong Kong

• Kim Sau Chung
  University of Minnesota and Chinese University of Hong Kong

We study a model of overlapping principal-agent problems, where one of yesterday's agents would be selected/promoted as today's principal, who then wields absolute power free of checks and balances, and has discretion over how to select/promote one of today's agents as tomorrow's principal. We use this model to theorize how a political system building on career concerns instead of checks and balances may function. We call this a model of career concerns, Beijing style, which differs fundamentally from one of career concerns, Holmström style, in that the disciplinary effect of career concerns exhibits inherent indeterminacy. The proper functioning of such a political system also relies on strong enough state capacity and an intermediate level of decentralization. Small improvement in the rule of law or a mandatory merit-based promotion rule may inadvertently render such a political system unworkable.