Hayek, Local Information, and Commanding Heights: Decentralizing State-Owned Enterprises in China
American Economic Review
vol. 107,
no. 8, August 2017
(pp. 2455-78)
(Complimentary)
Abstract
Hayek (1945) argues that local information is key to understanding the efficiency of alternative economic systems and whether production should be centralized or decentralized. The Chinese experience of decentralizing SOEs confirms this insight: when the distance to the government is farther, the SOE is more likely to be decentralized, and this distance-decentralization link is more pronounced with higher communication costs and greater firm-performance heterogeneity. However, when the Chinese central government oversees SOEs in strategic industries, the distance-decentralization link is muted. We also consider alternative agency-cost-based explanations, and do not find much support.Citation
Huang, Zhangkai, Lixing Li, Guangrong Ma, and Lixin Colin Xu. 2017. "Hayek, Local Information, and Commanding Heights: Decentralizing State-Owned Enterprises in China." American Economic Review, 107 (8): 2455-78. DOI: 10.1257/aer.20150592Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- L25 Firm Performance: Size, Diversification, and Scope
- L32 Public Enterprises; Public-Private Enterprises
- L33 Comparison of Public and Private Enterprises and Nonprofit Institutions; Privatization; Contracting Out
- O14 Industrialization; Manufacturing and Service Industries; Choice of Technology
- P31 Socialist Enterprises and Their Transitions