Department of Economics
Too many mothers-in-law?
Developing countries with low tax capacity may rely on predation to finance government functions. Government predation, in turn, is often accused of imposing a choking effect on state-owned enterprises (SOEs), contributing to the latter's poor performance. We formalize this choking effect as a problem of inefficient predation that arises from time inconsistency, and show that having multiple government bodies supervising the same SOE may mitigate this problem. Our theory provides an efficiency rationale for the Chinese style of decentralization before 1978, and challenges the wisdom of China's recent enterprise reform that attempted to consolidate supervisory power. © 2013 Elsevier B.V.
Government predation, H7, P3, Policy burden, State-owned enterprises, Transitional economies
Source Publication Title
Journal of Development Economics
Cheng, Yuk-Shing, and Kim-Sau Chung. "Too many mothers-in-law?." Journal of Development Economics 105 (2013): 69-76.