Hayek, Local Information, and the Decentralization of State-Owned Enterprises in China

Hayek argues that local knowledge is a key for understanding whether production should be decentralized. This paper tests Hayek’s predictions by examining the causes of the Chinese government’s decision to decentralize state-owned enterprises. Sinc...

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Bibliographic Details
Main Authors:	Huang, Zhangkai, Li, Lixing, Ma, Guangrong, Xu, Lixin Colin
Format:	Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2015
Subjects:	CAPITALS EMPLOYMENT UNEMPLOYMENT RATES CHECKS ACCOUNTING INTANGIBLE ASSETS CONFLICT OF INTEREST STOCK INFORMATION TECHNOLOGY AUTONOMY INFORMATION SYSTEM INTEREST DEPRECIATION DUMMY VARIABLES PRIVATIZATION INDUSTRY REMITTANCE PROPERTY RIGHTS EXCHANGE OPTION LOCAL GOVERNMENTS GDP PER CAPITA ELASTICITY PLANNED ECONOMY POLITICAL ECONOMY REVENUES PORTFOLIO INCENTIVES VARIABLES TIME CONSTRAINTS CAPITAL STOCK TAX PRIVATE PROPERTY INPUTS OWNERSHIP CITIES INCOME TAX DUMMY VARIABLE BANKRUPTCY OVERSIGHT INTERNATIONAL BANK PENSION INFORMATION ASYMMETRIES SMALL BUSINESS INFLUENCE TOTAL FACTOR PRODUCTIVITY COLLUSION INVESTMENT ALLOCATION ORGANIZATIONAL FORM COSTS TRANSPORT FINANCIAL STUDIES PORTFOLIOS CORPORATE INCOME TAXES PRODUCTIVITY ECONOMETRICS MIGRATION MUNICIPAL GOVERNMENTS CENTRALIZATION MARKETS AGENCY PROBLEMS LOCAL GOVERNMENT RETURN PUBLIC FINANCE LABOR TAX REVENUES ENTERPRISES ELASTICITY OF SUBSTITUTION INVENTORY SUBSIDIES FINANCE ECONOMIC RESEARCH INFRASTRUCTURE TAXES BANKS INFORMATION ASYMMETRY EXPENDITURE UNEMPLOYMENT EQUITY INCOME TAXES EXTERNALITY VALUE ADDED GOOD CAPITAL DEFLATORS UNEMPLOYMENT RATE VALUE SMALL BUSINESS LENDING MOBILE PHONE COMPETITIVENESS FISCAL CONDITIONS RETURNS FISCAL BURDEN CONFLICTS OF INTEREST FIXED CAPITAL FIXED INVESTMENT KNOWLEDGE ECONOMY PROPERTY ORGANIZATIONAL STRUCTURE FIRM PERFORMANCE SHARES ASSETS DEFAULT MARKET TAX SHARING PRODUCTION FUNCTION ECONOMIC SYSTEMS MARKET COMPETITION PREFECTURES FISCAL AUTONOMY GDP SECURITY INTANGIBLE GROWTH RATE INVESTMENT SHARE COMPARATIVE ADVANTAGE FISCAL REFORM FINANCIAL MARKETS FISCAL BURDENS DECENTRALIZATION REVENUE PROFIT FINANCIAL SUPPORT INVESTMENTS LENDING CHECK TRANSITION ECONOMIES INSTRUMENT GOVERNMENTS LIABILITIES POSITIVE EFFECTS MUNICIPAL CASH FLOW INCOME LEVEL DEVELOPMENT POLICY
Online Access:	http://documents.worldbank.org/curated/en/2015/06/24680786/hayek-local-information-decentralization-state-owned-enterprises-china http://hdl.handle.net/10986/22198

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Summary:	Hayek argues that local knowledge is a key for understanding whether production should be decentralized. This paper tests Hayek’s predictions by examining the causes of the Chinese government’s decision to decentralize state-owned enterprises. Since the government located closer to a state-owned enterprise has more information over that enterprise, a greater distance between the government and the enterprise should lead to a higher likelihood of decentralization. Moreover, where communication costs and the government’s uncertainty over an enterprise’s performance are greater, the government is more likely to decentralize enterprises so that it can better utilize local information. This paper finds empirical support for these implications.

Hayek, Local Information, and the Decentralization of State-Owned Enterprises in China

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