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

77 Pages Posted: 15 Feb 2017 Last revised: 3 Mar 2017

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

Colin Xu

Independent

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Date Written: February 14, 2017

Abstract

Hayek (1945) argues that local information is a 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.

Suggested Citation

Huang, Zhangkai and Li, Lixing and Ma, Guangrong and Xu, Colin, Hayek, Local Information, and Commanding Heights: Decentralizing State-Owned Enterprises in China (February 14, 2017). American Economic Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2917001 or http://dx.doi.org/10.2139/ssrn.2917001

Zhangkai Huang

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

Colin Xu (Contact Author)

Independent ( email )

No Address Available
United States

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