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Common agency and state-owned enterprise reform

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  • SIQUEIRA, Kevin
  • SANDLER, Todd
  • CAULEY, Jon

Abstract

This paper applies a common-agency model to demonstrate why recent enterprise reforms that assign the State Asset Supervision and Administration Commission (SASAC) a greater role in running China's state-owned enterprises (SOEs) are apt to fail. In a theoretical framework, we show that local principals' incentive payments are likely to clash with those of SASAC as local SOE principals' promote social stability and SASAC bolsters SOE efficiency. A second-best outcome requires a social planner to restrict actions by local principals and to impose taxes/subsidies to address inter-principal externalities. In the long run, the simplest solution is to privatize SOEs and find a public-sector funding source for promoting social stability.

Suggested Citation

  • SIQUEIRA, Kevin & SANDLER, Todd & CAULEY, Jon, 2009. "Common agency and state-owned enterprise reform," China Economic Review, Elsevier, vol. 20(2), pages 208-217, June.
    • Handle: RePEc:eee:chieco:v:20:y:2009:i:2:p:208-217
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    References listed on IDEAS

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    1. Bai, Chong-En & Li, David D. & Tao, Zhigang & Wang, Yijiang, 2000. "A Multitask Theory of State Enterprise Reform," Journal of Comparative Economics, Elsevier, vol. 28(4), pages 716-738, December.
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    Cited by:

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    3. Ye, Zhiqiang & Zhang, Fangfang & Zhang, Shunming, 2021. "Export effect and influence mechanism of foreign ownership," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 258-276.

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