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

77 Pages Posted: 16 Feb 2017 Last revised: 8 Mar 2017

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)

Multiple version iconThere are 2 versions of this paper

Date Written: February 15, 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.

Keywords: Local information, commanding heights, decentralization, Hayek

JEL Classification: D23, D83, L22, L23, P20, P

Suggested Citation

Huang, Zhangkai and Li, Lixing and Ma, Guangrong and Xu, Lixin Colin, Hayek, Local Information, and Commanding Heights: Decentralizing State-Owned Enterprises in China (February 15, 2017). American Economic Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2918443 or http://dx.doi.org/10.2139/ssrn.2918443

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 )

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 (Contact Author)

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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