IDEAS home Printed from https://ideas.repec.org/p/wdi/papers/1997-52.html
   My bibliography  Save this paper

Insecure Property rights and Government Ownership of Firms

Author

Listed:
  • Jiahua Che
  • Yingyi Qian

Abstract

China's remarkable economic growth occurred despite (1) the lack of rule of law to secure property rights against state encroachment; and (2) government ownership of most new and successful non-state firms. We develop a theory of ownership under state predation that incorporates these two considerations. In our theory, "private ownership" leads to excessive revenue hiding and "state ownership" fails to provide incentives for managers and local governments in a credible way. In contrast, "local government ownership" integrates local government activities and business activities together, which may not only provide incentives for local governments, but also involves less revenue hiding from the local government and less predation from the state. Furthermore, ownership diversity across localities and within a locality is possible. Our theory is consistent with empirical evidence from China. We thus interpret local government ownership as an organizational response to imperfect state institutions.

Suggested Citation

  • Jiahua Che & Yingyi Qian, 1997. "Insecure Property rights and Government Ownership of Firms," William Davidson Institute Working Papers Series 51, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:1997-52
    as

    Download full text from publisher

    File URL: http://deepblue.lib.umich.edu/bitstream/2027.42/39442/3/wp52.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
    2. Yingyi Qian, 1996. "Enterprise reform in China: agency problems and political control," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 4(2), pages 427-447, October.
    3. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    4. Hart, Oliver D, 1988. "Incomplete Contracts and the Theory of the Firm," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 4(1), pages 119-139, Spring.
    5. Oliver Hart & Andrei Shleifer & Robert W. Vishny, 1997. "The Proper Scope of Government: Theory and an Application to Prisons," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1127-1161.
    6. Schmidt, Klaus M, 1996. "The Costs and Benefits of Privatization: An Incomplete Contracts Approach," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 12(1), pages 1-24, April.
    7. Che, Jiahua & Qian, Yingyi, 1998. "Institutional Environment, Community Government, and Corporate Governance: Understanding China's Township-Village Enterprises," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 14(1), pages 1-23, April.
    8. Hehui Jin & Yingyi Qian, 1998. "Public Versus Private Ownership of Firms: Evidence from Rural China," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(3), pages 773-808.
    9. Chang Chun & Wang Yijiang, 1994. "The Nature of the Township-Village Enterprise," Journal of Comparative Economics, Elsevier, vol. 19(3), pages 434-452, December.
    10. Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, vol. 84(4), pages 972-991, September.
    11. Schmidt, Klaus M., 1996. "Incomplete contracts and privatization," European Economic Review, Elsevier, vol. 40(3-5), pages 569-579, April.
    12. Greif, Avner & Milgrom, Paul & Weingast, Barry R, 1994. "Coordination, Commitment, and Enforcement: The Case of the Merchant Guild," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 745-776, August.
    13. Andrei Shleifer & Robert W. Vishny, 1994. "Politicians and Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 995-1025.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jiahua Che, 2003. "The Life Cycle of Government Ownership," William Davidson Institute Working Papers Series 2003-627, William Davidson Institute at the University of Michigan.
    2. Robert Gibbons & John Roberts, 2012. "The Handbook of Organizational Economics," Economics Books, Princeton University Press, edition 1, volume 1, number 9889.
    3. Jiahua Che, 2000. "From the Grabbing Hand to the Helping Hand," William Davidson Institute Working Papers Series 58, William Davidson Institute at the University of Michigan.
    4. Schmidt, Klaus, 2017. "The 2016 Nobel Memorial Prize in Contract Theory," Rationality and Competition Discussion Paper Series 19, CRC TRR 190 Rationality and Competition.
    5. Ilya Segal & Michael D.Whinston, 2012. "Property Rights [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    6. Che, Jiahua, 2002. "Rent Seeking and Government Ownership of Firms: An Application to China's Township-Village Enterprises," Journal of Comparative Economics, Elsevier, vol. 30(4), pages 787-811, December.
    7. Stefan Buehler & Simon Wey, 2014. "When Do State-Owned Firms Crowd Out Private Investment?," Journal of Industry, Competition and Trade, Springer, vol. 14(3), pages 319-330, September.
    8. Eduard Marinov, 2016. "The 2016 Nobel Prize in Economics," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 97-149.
    9. Stephen King & Rohan Pitchford, 2008. "Private or Public? Towards a Taxonomy of Optimal Ownership and Management Regimes," The Economic Record, The Economic Society of Australia, vol. 84(266), pages 366-377, September.
    10. Andrei Shleifer, 1998. "State versus Private Ownership," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 133-150, Fall.
    11. Perotti,Enrico C., 2004. "State ownership - a residual role?," Policy Research Working Paper Series 3407, The World Bank.
    12. Patrick W. Schmitz, 2006. "Information Gathering, Transaction Costs, and the Property Rights Approach," American Economic Review, American Economic Association, vol. 96(1), pages 422-434, March.
    13. Eva I. Hoppe & Patrick W. Schmitz, 2013. "Public-private partnerships versus traditional procurement: Innovation incentives and information gathering," RAND Journal of Economics, RAND Corporation, vol. 44(1), pages 56-74, March.
    14. Süssmuth Bernd & von Weizsäcker Robert K., 2011. "Shooting Rampages and Maintenance of Campus Safety: An Incomplete Contracts Perspective," Review of Law & Economics, De Gruyter, vol. 7(2), pages 573-600, December.
    15. Patrick W. Schmitz, 2001. "Partial Privatization and Incomplete Contracts: The Proper Scope of Government Reconsidered," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 57(4), pages 394-411, August.
    16. Schmitz, Patrick W., 2023. "The proper scope of government reconsidered: Asymmetric information and incentive contracts," European Economic Review, Elsevier, vol. 157(C).
    17. Yildiz, Özgür, 2016. "Public-private partnerships, incomplete contracts, and distributional fairness – when payments matter," MPRA Paper 74552, University Library of Munich, Germany.
    18. Benjamin Bental & Bruno Deffains & Dominique Demougin, 2012. "Credibility and Monitoring: Outsourcing as a Commitment Device," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(1), pages 31-52, March.
    19. Hoppe, Eva I. & Schmitz, Patrick W., 2010. "Public versus private ownership: Quantity contracts and the allocation of investment tasks," Journal of Public Economics, Elsevier, vol. 94(3-4), pages 258-268, April.
    20. Committee, Nobel Prize, 2016. "Oliver Hart and Bengt Holmström: Contract Theory," Nobel Prize in Economics documents 2016-1, Nobel Prize Committee.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wdi:papers:1997-52. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: WDI (email available below). General contact details of provider: https://edirc.repec.org/data/wdumius.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.