Incentive Contracting versus Ownership Reforms: Evidence from China's Township and Village Enterprises

We use a unique data set to study the implications of introducing managerial incentives and, in addition to incentives, better defined ownership for a firm's financial performance. The data set traces the ten-year history of 80 Chinese rural enterprises, known as township and village enterprises. During this period, these originally (mostly) community owned, local government controlled socialist collective firms were first allowed to introduce managerial incentive contracts and then to change to ownership forms of more clearly defined income and control rights. The study finds that introducing managerial incentives had a positive but statistically insignificant effect on these firms' performance measured by accounting return on assets or return on equity. It also finds that the performance is significantly better under ownership forms of better-defined rights than under community ownership even when the latter is supplemented with managerial incentive contracts. The findings shed lights on some important theoretical and policy issues.http://deepblue.lib.umich.edu/bitstream/2027.42/39749/3/wp365.pd

Incentive Contracting versus Ownership Reforms: Evidence from China's Township and Village Enterprises

We use a unique data set to study the implications of introducing managerial incentives and, in addition to incentives, better defined ownership for a firm's financial performance. The data set traces the ten-year history of 80 Chinese rural enterprises, known as township and village enterprises. During this period, these originally (mostly) community owned, local government controlled socialist collective firms were first allowed to introduce managerial incentive contracts and then to change to ownership forms of more clearly defined income and control rights. The study finds that introducing managerial incentives had a positive but statistically insignificant effect on these firms' performance measured by accounting return on assets or return on equity. It also finds that the performance is significantly better under ownership forms of better-defined rights than under community ownership even when the latter is supplemented with managerial incentive contracts. The findings shed lights on some important theoretical and policy issues. Classification-JEL:

Towards a Model of China as a Partially Reformed Developing Economy Under a Semifederalist Government

Based on the survey of the literature on China's recent reform experience, this paper proposes to see China as a four sector economy under a semifederalist government. The four sectors are the agriculture, the state industry, the semistate rural industry and the private industry. The four sectors are divided and grouped under the jurisdiction of the increasingly more autonomous local governments. The economy faces the challenges that, first, as a development problem, agriculture labor needs to be allocated to the industry. Second, as a reform problem, the efficiency of state-owned enterprises needs to be improved and the ownership in township and village enterprises needs to be restructured. Third, government power needs to be structured to ensure a check-and-balance between the central and the local governments to offer protection to property rights. China's experience suggests a model of development featured by multiple types of organizations under a modified nondemocratic government.http://deepblue.lib.umich.edu/bitstream/2027.42/39421/3/wp31.pd

Human Capital Investment under Asymmetric Information: The Pigovian Conjecture Revisited.

This article investigates how human capital investment, labor turnover, and wages are jointly determined when the current employer knows more about a worker's productivity than potential employers. Results derived are quite different from, or unexplored by, the standard human capital theory. The authors show that the information asymmetry can cause an externality distortion in human capital investment because higher productivity due to the investment may not be recognized by the market. The investment level increases in the degree of firm specificity of human capital. The underinvestment problem is more severe when human capital is general than when it is firm-specific. Copyright 1996 by University of Chicago Press.

Choosing between Up-or-Out and Spot Contracts: Human Capital Investment versus Job-Matching Considerations

Up-or-out contracts can improve human capital investment incentives but lead to suboptimal worker-employer separation. When job matching uncertainty is large relative to the return to human capital investment, spot contracts Pareto dominate up-or-out contracts. Otherwise, up-or-out contracts are more efficient. This view seems consistent with contractual choices in many different situations including those for university appointments with different emphases on research and teaching. The model also shows that human capital investment can be positively correlated with turnover under the up-or-out contract, a prediction different from that of the traditional human capital theory but consistent with casual observations of university professors' experiences. The result shows that the relationship between human capital investment and labor turnover should be understood in the context of a chosen contractual form.Contract, Human capital, Labor

Choosing between Up-or-Out and Spot Contracts: Human Capital Investment versus Job-Matching Considerations

Up-or-out contracts can improve human capital investment incentives but lead to suboptimal worker-employer separation. When job matching uncertainty is large relative to the return to human capital investment, spot contracts Pareto dominate up-or-out contracts. Otherwise, up-or-out contracts are more efficient. This view seems consistent with contractual choices in many different situations including those for university appointments with different emphases on research and teaching. The model also shows that human capital investment can be positively correlated with turnover under the up-or-out contract, a prediction different from that of the traditional human capital theory but consistent with casual observations of university professors' experiences. The result shows that the relationship between human capital investment and labor turnover should be understood in the context of a chosen contractual form.Contract, Human capital, Labor