Ziying Fan, Shanghai University of Finance and Economics; Wei Xiong; and Li-An Zhou, Peking University

Information Distortion in Hierarchical Organizations: A Study of China's Great Famine

The literature has attributed China's Great Famine of 1959-1961 to sharp declines in grain output caused by reduced peasant incentives and excessive grain procurement. Fan,Xiong, and Zhou provide evidence to further connect these failures to information distortion inside the government system. Specifically, the researchers document the following findings. First, local officials competed with each other in massive inflation of local grain yield in an effort to cater to Mao's wishful thinking about the Great Leap Forward. Second, as a result of the inflated yield inflation, the central government failed to realize the widespread famine and organize systematic famine relief until two years after the famine started. Third, during the first two years, the central government transferred a substantial amount of grain out of the provinces that experienced severe famine while local officials in these provinces redistributed grain back to peasants using locally controlled grain stock. By revealed "knowledge," the last finding illustrates the information gap between the central government and local officials at the peak of the famine. Overall, the analysis highlights severe consequences of information distortion induced by subordinates' incentives to cater to their superior's wishful thinking.