A view from behavioral political economy on China's institutional change

A behavioral political economy framework is built on the basis of prospect theory to explain the induced and imposed institutional changes during China's market reform, giving special attention to the integrated effects of economic and political institutions. According to prospect theory, how rulers frame their decisions - in the prospects of gains or losses, influences how much risk they will take. China's market reform has been largely framed in the prospects of economic gains, for which the continuously growing private sector is the driving force. China's central government adopts a growth-oriented incremental reform that coincides with the prediction of prospect theory.

► I integrate behavioral economics and political economy to study institutional change. ► Induced and imposed institution changes have different driving forces. ► A radical economic reform is unlikely within an authoritarian regime. ► Induced institutional changes are the major driving force of reforms.