Skip to main content
Article thumbnail
Location of Repository

State-owned enterprises, shirking and trade liberalization

By Madanmohan Ghosh and John Whalley


We explore the implications of trade liberalization in economies with State Owned enterprises (SOEs) and shirking. SOEs are modelled as controlled by the members of the enterprise who determine output and effort levels, while facing output prices and wage rates set by government. Enterprise members must collectively meet a budget constraint that the value of sales equals the enterprise wage bill plus an exogenous enterprise commitment to the state budget. Labour can shirk either through low on the job effort (leisure), or through moonlighting to second jobs in the private sector. Three alternative formulations of equilibria in SOE economies are explored, and in these trade liberalization can produce effects opposite from conventional competitive models. In particular, the output of import competing SOEs increases rather than falls, and negative effects on imports can also occur. These models when calibrated to 1995 data for Vietnam also suggest quantitatively much larger impacts from trade liberalization than is the case for comparable conventional competitive models. This is because departures from Pareto optimality in SOE economies can be large and trade liberalization acts to discipline shirking associated with these inefficiencies. The implication we draw from our analysis is that to evaluate policy initiatives, such as trade liberalization, in developing and transition economies without explicitly recognizing the role that SOE’s can play may be misleading. This is especially the case where SOEs account for a significant fraction of economic activity and shirking is involved

Topics: HF, HD
Publisher: University of Warwick. Centre for the Study of Globalisation and Regionalisation
Year: 2000
OAI identifier:

Suggested articles


  1. (1994). Autonomy and Incentives in Chinese State Enterprises”, doi
  2. (1998). Bureacratic Control and the Soft Budget Constraints”,
  3. (1995). Bureaucrats in Business, World Bank Policy Research Report, doi
  4. (1993). Does Free Exit Reduce Shirking in Production Teams?”, doi
  5. (1999). Enterprise Reform in China: Ownership, Transition, and Performance, World Bank, doi
  6. (1999). Evaluating Tax Reform in Vietnam Using General Equilibrium”,
  7. (1996). Labour Market Aspects of State Enterprise Reform in Vietnam, doi
  8. (1984). Numerical Specification of Applied General Equilibrium Models: Estimation, Calibration and Data”
  9. (1989). Ownership and Performance in Competitive Environments: A Comparison of the Performance of Private, Mixed, and State Owned Enterprises”, doi
  10. (1979). Public versus Private Provision of Collective Goods and Services: Garbage Collection Revisited”, doi
  11. (1996). Statistical Yearbook doi
  12. (1996). Statistical Yearbook of Labour-Invalids and Social Affairs
  13. (1980). The Relative Efficiency of Public and Private Firms in a Competitive Environment: The Case of Canadian Railroads”, doi
  14. (1996). The Tax Unit and Household Production”, doi
  15. (1994). The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience”, doi
  16. (1959). Theories of Decision Making in
  17. (1996). Vietnam in Transition to Market-oriented Economy, Ministry of Planning and Investment,

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.