Abstract

A long tradition of intellectual thought from Max Weber views an ideal bureaucracy as a completely rule-based system and regards discretion in allocating government positions detrimental to performance due to favoritism and corruption. But the net effect of discretionary appointment compared to rule-based one is ambiguous in theory and lacking in empirical evidence. We study how discretionary appointment affects talent allocation and governance performance in China’s imperial bureaucracy during the “High Qing” era. Exploiting an abrupt change in the appointment method of prefecture governors, we show that discretionary appointments improve the average talent of governors and lead to an increase in public goods provision and a reduction in social unrest. Moreover, we find large heterogeneity on the benefits and costs of discretion among different senior appointers, suggesting whether discretionary appointments are favorable or harmful depends on the extent to which the incentive of the decision maker is aligned with the organizational performance.