Policy burden, information supervision and inverted soft budget constraints: an explanation of the local government behaviors in the project operation

DI Jinhua1,2

(1.Department of Sociology, Huazhong Agricultural University)
(2.Research Centre for Rural Social Construction and Management, Huazhong Agricultural University)

【Abstract】This paper, based on the concept of inverted soft budget constraint, distinguishes the effects of different target properties (both endogenous and exogenous targets) of government behaviors on soft budget constraints. It analyzes the differences between two soft budget constraints caused by the endogenous target and the exogenous target respectively at the levels of generating mechanism, behavior logic, and consequences. This paper uses the example of the operation process of a rural county’s agricultural comprehensive development to examine how a local government, which is short of financial support while carries out the supporting project, chooses to transfer the proportional funds-supported project to the project beneficiary in order to lessen its own financial burden. This behavior led to the failure of the motivation system, despite the fact that it is originally set up by the high-level government to motivate the local government for better behaviors.

【Keywords】 target property; policy burden; soft budget constraint; information supervision; inverted soft budget constraint;


【Funds】 Project of National Social Science Foundation of China (12CSH009) Special Funding Project for Basic Research of National Key Universities (2014PY023) Project of Soft Sciences Research of Sci-Tech Support Plan in Hubei Province (2014BDF102)

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(Translated by CAO xuebing)


    [1]. ① According to Zhou Xueguang, the inverted soft budget constraint mainly refers to the local government’s behaviour of grabing resources from organizations and individuals inside its administrative region. [^Back]

    [2]. ① To strictly distinguish the exogenous and endogenous properties of targets must be associated with specific governments. For instance, the decision of the county party committee is endogenous for the leaders of the committee, while for all departments and townships to implement the decision, it becomes exogenous. Thus, within a bureaucracy system, any government can, and may, set endogenous targets. Once a target is promoted and pushed downwards, it will become an exogenous target for governments of lower levels. The analysis regarding the relative property of targets is benefited from the discussions with Professor Liu Neng and Associate Professor Chen Jiajian. [^Back]

    [3]. ② Endogenous targets might be influenced by external factors, for instance, the construction of governance performance projects that aim to send signals to high-level leaders. [^Back]

    [4]. ③ The evaluation may be formal or informal. The assessment of the conditions for achieving the target might include the examination of institutional conditions and the examination of non-institutional conditions. [^Back]

    [5]. ① The situations discussed here include, in fact, absolute incompatibility and relative incompatibility. [^Back]

    [6]. ② For enterprises aimed for production and profits, the political task is obviously a type of “policy burden.” [^Back]

    [7]. ① Chen (2015) gave a detailed analysis for the four conditions of initiating the supervision mechanism. [^Back]

    [8]. ① Kornai, when summarizing the characters of soft budget constraints, noted that one of the important features for soft budget constraints is the close administration connection between enterprises and departments in the central government. This was regarded as “vertical connection” (Kornai, 1998). [^Back]

    [9]. ① Most Chaxian County’s agricultural comprehensive development projects are applied through the Agricultural Comprehensive Development Office in the county, although there are a few projects that are done through the Agricultural Bureau or Technology Bureau. [^Back]

    [10]. ① Although villages’ economic capacity is an important factor for choosing the receiver of projects, it is not the determinant, because local governments clearly understand that for a village that has motives to strive for the project, even if its economy is not good enough, there may be some kind of “flexibility” enabling the fake matching of the project. [^Back]

    [11]. ① Horizontal matching between projects differs from the “packaging” mechanism discussed by Zhe and Chen (2011). The “packaging” mechanism is shown in Figure 2, and the local government could use its own decision-making power to integrate all relevant projects, in order to achieve the scale effect. [^Back]


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This Article


CN: 11-1100/C

Vol 30, No. 06, Pages 49-72+243

November 2015


Article Outline


  • 1 Introduction
  • 2 From soft budget constraint to inverted soft budget constraint: a brief literature review
  • 3 Target properties, resource matching, and inverted soft budget constraints
  • 4 Inverted soft budget constraint in the proportional funds-supported project: a case study
  • 5 Conclusion and discussion
  • Footnote