Weak central government, strong legal rights: the origins of divergent legal institutions in 18th-century Chinese and Japanese rice markets

This paper examines the formation of legal institutions in Qing China and Tokugawa Japan with a focus on the rice market. In both countries in the 18th century, rice was the most important commodity. By the end of 18th century, Japan offered strong legal rights to rice market participants, while China managed the rice market with weak legal institutions. We develop a subversive regime game model to explain some of the social and political reasons behind this divergence. Supported by historical evidence from Qing China and Tokugawa Japan, we find that with lower suppression capacity and high risks of domestic threats to power, Edo Japan’s central government (Bakufu) was more likely to enforce legal rights than Qing China’s central government (Imperial Court). Japan’s institutional configuration facilitated the growth of rice markets such as the Doujima market in Osaka, because participants did not need to invest as much in informal protections for their own rights. Moreover, our analysis suggests that a state’s relative strength matters the most in determining its attitude toward legal rights, which further influences the state’s stability and longevity.