Binding Leviathan: Credible Commitment in an Authoritarian Regime

Abstract

The problem of credible commitment dogs every government, whether democratic or authoritarian. Authoritarian bureaucracies face special credible commitment problems. Fear that local officials will build up a local power base has historically induced the leadership of China, Imperial and Communist alike, to frequently transfer local officials among subnational jurisdictions. Such frequent transfers undermine those officials’ capacity to make the credible commitments that officials with more stable tenure can make with ease. Moreover, authoritarian regimes discourage the development of independent institutions—like investor-owned banks or locally elected legislatures—that are independent from local executive officials and that might otherwise act as monitors and enforcers of long-term commitments.

We describe how these problems of credible commitment posed by China’s cadre transfer policy and, more generally, the Chinese Communist Party’s distrust of divided power lead to excessive municipal debt in China. We also propose three new institutional solutions for resolving the credible commitment problem of China’s authoritarian regime. In the end, we conclude that there is no magical solution that can reassure stakeholders, such as lenders or home buyers, that an autocratic mayor will follow through on his or her promises. All of our proposed solutions, however, trade on the intuition that even modest institutional limits on power, compatible with China’s one-party system of democratic centralism, can mitigate the problem of powerlessness ironically created by authoritarian power.