Abstract: The motivation for the reform of local large department system is to reduce administrative expenses and improve administrative efficiency by merging some departments (both the Party and the government bodies) with the same or similar functions, thus streamlining institutions and personnel. Similar pilot reforms have been carried out in some counties and districts in Shanxi, Shaanxi, Hubei, Guangdong, and other provinces without achieving the expected results. Such a dilemma has arisen because there lacks the correspondence with the departments and institutions of the higher-level government after the reform, resulting in operating costs exceeding that generated by the original structure, an in-vain effort. The action logic of the reform, from the perspective of institutional change, is decided jointly by the environmental pressure, path dependence, and interest compensation; the reform is essentially an institutional change that must comply with the principle of cost-effectiveness for sustaining the operation of the system generated by the reform. This also determines that an approach of marginal progression rather than a totally new pattern should be adopted.

Key words: counties with small population, reform of local large department system, institutional changes, marginal progression