Central–local relations, accountability, and defensive administration: unraveling the puzzling shrinkage of China’s urban social safety net

The calibration between national regulatory oversight and local policy autonomy is a prominent feature in the discussion regarding social assistance institutions in large countries. The complex principal-agent structure embedded within such institutions and the resultant information asymmetry make it difficult for the national principal to monitor the behaviour of subnational agents, resulting in prevalent mis-targeting of welfare benefits and petty corruption. Built on a principal-agent framework, this study seeks to explain the puzzling shrinkage of China’s Minimum Livelihood Guarantee Scheme (Dibao) in recent years. Accountability mechanisms are found to exert major impacts on the scale of welfare programs. Using a unique city-level panel dataset and difference-in-differences (DID) strategy, this quantitative study finds that discipline inspection by upper-level government leads to a significant decrease of Dibao coverage in a city, a link reinforced by the local intensity of China’s anti-corruption campaign. Blame avoidance and the defensive reaction of local agents triggered by draconian enforcement of accountability result in distorted welfare administration on the ground. Building informational capacity presents a useful approach in mitigating the vertical control–autonomy dilemma illustrated in this study.