American Economic Review Vol. 107 No. 8 2017

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

Zhangkai Huang¹; Lixing Li²; Guangrong Ma³; Lixin Colin Xu⁴

¹ School of Economics and Management, Tsinghua University, Beijing 100084, China (email: ) · ² China Center for Economic Research, National School of Development, Peking University, Beijing 100871, China (email: ) · ³ School of Finance, Renmin University of China, Beijing 100872, China (email: ) · ⁴ World Bank, the Research Group, 1818 H Street, NW, Washington, DC 20433 (email: )

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.

DOI

10.1257/aer.20150592

Volume

107

Issue

8

Pages

2455-2478

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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