The level of decentralization and property rights protection––a sociological analysis of property rights

Economists have used the mechanism of interjurisdictional competition to explain how decentralization affects the degree of property rights protection. This fails however to account for another significant question: In China, can the local decentralization from the provincial level to the prefectural (county) level be more effective in protecting the private property rights of investors, especially when goods and production factors cannot flow freely among regions? The social perspective of property rights can help answer this question. In this study, we find that within the governance structure of decentralization, the mechanism of vertical constraints is more significant than the mechanism of interjurisdictional competition in protecting the private property rights of investors. However, the effectiveness of the vertical constraints mechanism depends on the resistance costs of discontented investors. Decentralizing to the prefectural level, in comparison to the provincial level, lowers these resistance costs for investors while strengthening the mechanism of vertical constraints, thereby improving the degree of property rights protection for private investors.