The Iron Law of Fiefs: Bureaucratic Failure and the Problem of Governance in the Chinese Economic Reforms

The authors wish to acknowledge the helpful comments of Professor Tom Lupton and the ASO editor and anonymous reviewers. This paper argues that the current markets and hierarchies framework of transaction-cost economics provides too limited a set of transactional options to account adequately for many of the organizational problems encountered in developing economies. Focusing on the codification and diffusion of information, it provides a set of concepts designed to extend the existing framework. Applying these concepts to an analysis of the economic reforms in the People's Republic of China since 1978, the paper identifies a form of bureaucratic failure that lies beyond the markets-hierarchies typology and that highlights the important role played by culture and level of development in shaping transactional preferences.'