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How Reform Worked in ChinaThe Transition from Plan to Market$
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Yingyi Qian

Print publication date: 2017

Print ISBN-13: 9780262534246

Published to MIT Press Scholarship Online: May 2018

DOI: 10.7551/mitpress/9780262534246.001.0001

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Insecure Property Rights and Government Ownership of Firms

Insecure Property Rights and Government Ownership of Firms

Chapter:
(p.131) 5 Insecure Property Rights and Government Ownership of Firms
Source:
How Reform Worked in China
Author(s):

Yingyi Qian

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262534246.003.0006

We develop a theory of the ownership of firms in an environment without secure property rights against state encroachment. "Private ownership" leads to excessive revenue hiding and "state ownership" (i.e., national government ownership) fails to provide incentives for managers and local governments in a credible way. Because "local government ownership" integrates local government activities and business activities, local government may better serve the interests of the national government, and thus local government ownership may credibly limit state predation, increase local public goods provision, and reduce costly revenue hiding. We use our theory to interpret the relative success of local government-owned firms during China’s transition to a market economy.

Keywords:   Property rights, State encroachment, State ownership, Local government, Revenue hiding, Market economy

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