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Insecure Property Rights and Government Ownership of Firms

  • Jiahua Che
  • Yingyi Qian

Forthcoming, Quarterly Journal of Economics, May 1998 We develop a theory of the ownership of firms in an environment without secure property rights against state encroachment. "Private ownership" leads to excessive revenue hiding and "state ownership" (i.e., national government ownership) fails to provide incentives for managers and local governments in a credible way. Because "local government ownership" integrates local government activities and business activities, local government may better serve the interests of the national government, and thus local government ownership may credibly limit state predation, increase local public goods provision, and reduce costly revenue hiding. We use our theory to interpret the relative success of local government-owned firms during China's transition to a market economy. Key Words: Property Rights, Ownership, State Predation, Local Government, Multi-Task, China

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Paper provided by Stanford University, Department of Economics in its series Working Papers with number 97050.

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Handle: RePEc:wop:stanec:97050
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  1. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
  2. Oliver D. Hart, 1987. "Incomplete Contracts and the Theory of the Firm," Working papers 448, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Oliver Hart & Andrei Shleifer & Robert Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," Harvard Institute of Economic Research Working Papers 1778, Harvard - Institute of Economic Research.
  4. 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 745-76, August.
  5. Oliver Hart & John Moore, 1988. "Property Rights and the Nature of the Firm," Working papers 495, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Jiahua Che & Yingyi Qian, . "Institutional Environment, Community Government, and Corporate Governance: Understanding China's Township-Village Enterprises," Working Papers 97043, Stanford University, Department of Economics.
  7. Chang Chun & Wang Yijiang, 1994. "The Nature of the Township-Village Enterprise," Journal of Comparative Economics, Elsevier, vol. 19(3), pages 434-452, December.
  8. Schmidt, Klaus M, 1996. "The Costs and Benefits of Privatization: An Incomplete Contracts Approach," Journal of Law, Economics and Organization, Oxford University Press, vol. 12(1), pages 1-24, April.
  9. Shleifer, Andrei & Vishny, Robert W, 1994. "Politicians and Firms," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 995-1025, November.
  10. Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, vol. 84(4), pages 972-91, September.
  11. 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.
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