Hayek, Local Information, and the Decentralization of State-Owned Enterprises in China

47 Pages Posted: 20 Apr 2016

See all articles by Zhangkai Huang

Zhangkai Huang

Tsinghua University - School of Economics & Management

Lixing Li

Peking University - China Center for Economic Research (CCER)

Guangrong Ma

Peking University; Renmin University of China - School of Finance

Lixin Colin Xu

World Bank - Development Research Group (DECRG)

Date Written: June 22, 2015

Abstract

Hayek argues that local knowledge is a key for understanding whether production should be decentralized. This paper tests Hayek?s predictions by examining the causes of the Chinese government?s decision to decentralize state-owned enterprises. Since the government located closer to a state-owned enterprise has more information over that enterprise, a greater distance between the government and the enterprise should lead to a higher likelihood of decentralization. Moreover, where communication costs and the government?s uncertainty over an enterprise?s performance are greater, the government is more likely to decentralize enterprises so that it can better utilize local information. This paper finds empirical support for these implications.

Keywords: Public Sector Management and Reform, Private Sector Development Law, Economics and Institutions, Private Sector Economics, Non Governmental Organizations, Marketing, Information Technology

Suggested Citation

Huang, Zhangkai and Li, Lixing and Ma, Guangrong and Xu, Lixin Colin, Hayek, Local Information, and the Decentralization of State-Owned Enterprises in China (June 22, 2015). World Bank Policy Research Working Paper No. 7321. Available at SSRN: https://ssrn.com/abstract=2621875

Zhangkai Huang (Contact Author)

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Lixing Li

Peking University - China Center for Economic Research (CCER) ( email )

Beijing, 100871
China

Guangrong Ma

Peking University ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

Renmin University of China - School of Finance

Ming De Main Building
Renmin University of China
Beijing, Beijing 100872
China

Lixin Colin Xu

World Bank - Development Research Group (DECRG) ( email )

1818 H Street, N.W.
MC 3-427
Washington, DC 20433
United States
202-473-4664 (Phone)
202-522-1155 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/cxu

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