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Title:From the grabbing hand to the helping hand: A rent seeking model of China's township-village enterprises PDF Logo
Authors:Che, Jiahua
Issue Date:2002
Series/Report no.:WIDER Discussion Papers // World Institute for Development Economics (UNU-WIDER) 2002/13
Abstract:I present a study of ownership of firms under government rent seeking. Using its control of regulated inputs, a government agency extracts rents from a manager who undertakes an investment. Such a government rent seeking activity leads to a typical hold-up problem. Government ownership is shown to serve as a second best commitment mechanism through which the government agency will restrain itself from the rent seeking activity and even offer the manager support and favor such as tax breaks and subsidies. This mechanism works at a cost as government ownership compromises ex post managerial incentives and creates distortion in resource allocation. Nevertheless, government ownership may Pareto dominate private ownership under certain conditions. These conditions correspond to a host of stylized empirical observations concerning local government-owned firms (township-village enterprises) during China’s transition to a market economy.
Subjects:ownership of firms
rent seeking
township and village enterprises
Document Type:Working Paper
Appears in Collections:WIDER Discussion Papers, United Nations University (UNU)

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