There is ample evidence of a "democracy premium." Using field data and laboratory experiments, it has been observed that democratic governance leads to more cooperative behavior compared to a non-democratic approach. We present evidence from Chinese students and workers who participated in public goods experiments and a value survey. We find a premium for top-down rule implementation arguably stemming from people with stronger individual values for obeying authorities. When participants have higher values for obeying authorities, they even conform to unfavorable rules. Our findings provide evidence that the effectiveness of a political institution depends on its congruence with individual values and societal norms.

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This article introduces the analytical framework of “government competition”, which encompasses current models of Chinese local government like the “developmental” or “entrepreneurial state” as special cases. The argument is based on a detailed empirical case study of Gujiao Municipality (Shanxi Province) which is put into perspective with reference to two other cases (Tongxiang, Zhejiang Province, and Zhangjiagang, Jiangsu Province). It is argued that the specific interaction between fiscal reforms and local approaches to infrastructure finance is the outcome of vertical and horizontal competition among governments. This competition is conceived as a complex system of formal and informal institutions undergoing endogenous change. Rooted in historically determined institutions like the regional property rights system in local resources, the system evolves through political entrepreneurship crafting competitive strategies and institutional innovations. The peculiar features of Chinese local government like budgetary dualism, local resource ownership or fiscal bargaining should not be conceived as “policy failures” in terms of deviations from centrally imposed formal institutions. They are defining features of the institutional framework of government competition in China, in which the central government is only one player.