Common agency and state-owned enterprise reform

Kevin Siqueira, Todd Sandler and Jon Cauley

China Economic Review, 2009, vol. 20, issue 2, 208-217

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.

Keywords: Common; agency; State-owned; enterprise; Chinese; economic; reforms; Principal-agent; problem; Free; riding; Stakeholders (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:20:y:2009:i:2:p:208-217

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