Choice and Transformation of China's Governance Modes: A Formal Model

This study uses a three-level principal-agent model of central government (principal)-intermediate government (manager)-local government (agent) to construct a theory of control rights in governance. By designing various governance contracts, we first translate governance modes into allocations of goal-setting rights, incentive distribution rights, and inspection and assessment rights, and then analyze the mechanisms of choice and conditions of change in governance modes. The study provides a detailed description of three typical governance modes of tight-coupling, administrative-contracting, and loose-coupling. Minimization of organizational cost is taken as the standard to find the optimal contract and its corresponding organizational cost expression under each governance mode. Through numerical simulation technology, we calculate and compare the cost of each governance mode under the complete task attributes combination and then obtain the optimal governance mode selection rule for different task attribute