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

Zhangkai Huang | Zendy; Lixing Li | Zendy; Guangrong Ma | Zendy; Lixin Colin Xu | Zendy

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

Author(s) -

Zhangkai Huang,

Lixing Li,

Guangrong Ma,

Lixin Colin Xu

Publication year - 2017

Publication title -

ssrn electronic journal

Language(s) - English

Resource type - Journals

ISSN - 1556-5068

DOI - 10.2139/ssrn.2918443

Subject(s) - state owned , china , state (computer science) , business , economic system , finance , market economy , economics , political science , law , computer science , algorithm

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.

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