<Para ID="Par1">This paper explores the role of state capacity in the comparative economic development of China and Japan. Before 1850, both nations were ruled by stable dictators who relied on bureaucrats to govern their domains. We hypothesize that agency problems increase with the geographical size of a...</para>

This paper argues that China's size was one reason behind its relative decline in the nineteenth century. A ruler governing a large country faces severe agency problems. Given his monitoring difficulties, his agents have strong incentives to extort the taxpayers. This forces him to keep taxes...