A theory fo contracy and ownership choice in public enterprises under reformed socialism: The case of China's TVEs

ABSTRACT: We construct a formal model on the general lines of the rent-seeking theory to explain the pattern of contractual and ownership arrangements and its evolution in China's township and village enterprises. We show that because local government officials are not the residual claimants of TVEs and are corruptible, they may have incentives to make inefficient choices. But market competition will force them increasingly to adopt efficient arrangements JEL Classification Numbers: P26, P31, D23, and L32