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Contract management responsibility system and profit incentives in China's state-owned enterprises

journal contribution
posted on 2000-03-01, 00:00 authored by C Choe, Xiangkang YinXiangkang Yin
While the enterprise reform of China has provided profit incentives to its state-owned enterprises (SOEs), their poor performance relative to enterprises with other ownership forms remains puzzling. This article provides an answer to this puzzle by studying optimal managerial decisions under the enterprise reform. When the managers of SOEs make decisions under uncertainty to maximize their own expected compensation, it is shown that managerial contracts generally fail to provide incentives to managers for expected profit maximization. Necessary and sufficient conditions for the equivalence of the outcomes from maximizing expected compensation and expected profit are provided along with some policy implications for further reforms. © 2000 Elsevier Science Inc.

History

Journal

China economic review

Volume

11

Issue

1

Season

Spring

Pagination

98 - 112

Publisher

Elsevier

Location

Amsterdam, The Netherlands

ISSN

1043-951X

Language

eng

Publication classification

C1.1 Refereed article in a scholarly journal

Copyright notice

2000, Elsevier Science