The Reforms of Shang Yang

Shang Yang is regarded as the chief architect of the Chinese state. This paper interprets the Reforms of Shang Yang from the perspective of economics and analyzes the Reforms in a mathematical model. Shang Yang tried to rationalize government administration and to organize the economy more efficiently. Those reforms laid the foundation of Qin’s unification of China. In this paper, the ruler chooses incentives for soldiers, the degree of adopting the county form, and the level of military spending to handle internal rebellions and external threats. The existence of institutional complementarity between the adoption of the county form and the use of strong incentives for soldiers is established. It is shown that an increase in the level of external threats induces the ruler to adopt stronger incentives for soldiers, to choose a higher degree of military spending, and to choose a higher degree of adopting the county form. An increase in the power of clans leads the ruler to choose a lower incentive for soldiers and a lower level of adopting the county form.