How China ' s government and state enterprises partitioned property and control rights

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How China's government and state enterprises partitioned property and control rights, Volume 1

Author:	Lixin Colin Xu;	Collection Title:	Policy, Research working paper ; no. WPS 1743
Country:	China;	Date Stored:	2001/04/21
Document Date:	1997/03/31	Document Type:	Policy Research Working Paper
Language:	English	Major Sector:	Public Administration, Law, and Justice
Region:	East Asia and Pacific	Report Number:	WPS1743
Sub Sectors:	Public Sector Management Adjustment	SubTopics:	Environmental Economics & Policies; International Terrorism & Counterterrorism; Economic Theory & Research; Banks & Banking Reform; National Governance; Labor Policies; Municipal Financial Management
Volume No:	1

Summary: In 1980, China's government owned and controlled its state enterprises, which were managed (inefficiently) by bureaucrats. During the 1980s, the government experimented with decentralizing state enterprises to boost productivity. By decade's end, China's state enterprises had become more market-oriented, and the structure of enterprise property rights had changed dramatically. The author examines how China's government and state enterprises partitioned property rights -how the government and enterprises decided about incentives, financial arrangements, and control rights. The author assumes that the government is risk-neutral and the enterprise manager is risk-averse; that the government's goal is to increase revenue (or profitability), to retain control of the firms (by bailing out firms in financial trouble and collective heavier taxes on high-performing firms). The enterprise manager and employees, on the other hand, have an informational advantage over the government that allows them to earn a rent; that advantage leads to suboptimal efforts. Among the author's findings: (1) The ways the government and enterprises partitioned property rights were consistent with the prediction of the principal-agent model based on the above assumption. (2) Many of the changes in property rights reflected the government's attempt to cope with managerial informational advantage. (3) The government, in striving for equality, rewards inefficient firms while penalizing efficient ones (the so-called ratchet effect). Efficient firms are unwilling to reveal their true efficiency. They pretend to be inefficient by slacking, so they can get more transfers. So, there are inherent conflicts between two of the government's goals: profitability and equality. And the government's desire to control state enterprises prevents many of them from becoming decentralized and improving their productivity.


Official Documents Official, scanned versions of documents (may include signatures, etc.)
File Type		Description	File Size (mb)

	PDF 36 pages	Official version*	2.52 (approx.)
	Text	Text version**


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File Type		Description	File Size (mb)

	PDF 31 pages	WPS1743	0.18

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** The text version is the OCR text of the final scanned version and is not an accurate representation of the final text.
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