Common agency and state-owned enterprise reform |
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Authors: | Kevin SIQUEIRA Todd SANDLER Jon CAULEY |
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Institution: | aSchool of Economic, Political & Policy Sciences, University of Texas at Dallas, Richardson, TX 75080, USA;bDepartment of Economics, University of Hawaii, Hilo, Hilo, HI 96720, USA |
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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. |
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Keywords: | Common agency State-owned enterprise Chinese economic reforms Principal-agent problem Free riding Stakeholders |
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