Hayek, Local Information, and Commanding Heights: Decentralizing State-Owned Enterprises in China†

Hayek, Local Information, and Commanding Heights: Decentralizing State-Owned Enterprises in China† AbstractHayek (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. (JEL D22, D83, L25, L32, L33, O14, P31) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Review American Economic Association

Hayek, Local Information, and Commanding Heights: Decentralizing State-Owned Enterprises in China†

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Publisher
American Economic Association
Copyright
Copyright © 2017 © American Economic Association
ISSN
0002-8282
D.O.I.
10.1257/aer.20150592
Publisher site
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Abstract

AbstractHayek (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. (JEL D22, D83, L25, L32, L33, O14, P31)

Journal

American Economic ReviewAmerican Economic Association

Published: Aug 1, 2017

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