Zhigang Tao

Local Protectionism and Regional Specialization: Evidence from China's Industries

This paper uses a dynamic panel estimation method to investigate the determinants of regional specialization in China???s industries, paying particular attention to local protectionism. Less geographic concentration is found in industries where the past tax-plus-profit margins and the shares of state ownership are high, re- flecting stronger local government protection of these industries. The evidence also supports the scale-economies theory of regional specialization. Finally, the overall time trend of regional specialization of China???s industries is found to have reversed an early drop in the mid 1980s, and registered a significant increase in the later years.

The Multitask Theory of State Enterprise Reform: Empirical Evidence from China

The degree of state ownership remains significant in the Chinese economy despite more than two decades of economic reform since 1979. Most of the remaining state- owned enterprises (SOEs) are money losing, and the few exceptional ones tend to be sheltered by government protection in selected industries. Yet China has been enjoying one of the most spectacular growth experiences in world history, and much of the growth is driven by non-state-owned enterprises (non-SOEs). Given the poor financial performance of SOEs, the co-existence of state ownership and non-state ownership in China is a puzzling phenomenon. Does state ownership exist solely for the benefit of politicians, or has state ownership played any role in Chinas spectacular growth? Is there any rationale behind Chinas gradual and selective approach towards privatizing its SOEs? What types of SOEs does the Chinese government choose to privatize? What are the consequences of privatization? In this paper, we offer a multitask theory of SOE reform in the context of China, which has predictions about the types of SOEs to be chosen for privatization and the results of privatization. We then present empirical evidence supporting the basic premise of the theory and its predictions.

Policy on international R&D cooperation: Subsidy or tax?

In this paper we derive the non-cooperative, optimal policy towards international RD moreover, we show that the optimal policy is subsidy regardless of the strategic nature (substitute or complement) of the strategy variables, a result that contradicts the traditional wisdom. ( 1998 Elsevier Science B.V. All rights reserved.

Contract Mixing in Franchising as a Mechanism for Public-Good Provision

This paper is concerned with the coexistence of company-owned units and franchised units in business format franchising and their different contractual arrangements. Drawing insights from case studies that indicate both the development and the maintenance of company-wide brand names and unit-specific sales activities are crucial to a franchise company, we construct a multitask model to account for such contract mixing in franchising. Intuitively, low-powered contracts are offered to some managers to induce effort for brand-name development and maintenance, while high-powered contracts are offered to the remaining managers to elicit sales activity and capture the beneficial effect of the company brand name. Franchising can thus be viewed as an organizational agreement for production involving brand-name products and services. Copyright (c) 2000 Massachusetts Institute of Technology.

Revenue Sharing and Control Rights in Team Production: Theories and Evidence from Joint Ventures.*

This paper presents a model of the joint venture that is grounded in the stylized facts we found from a sample of 200 joint venture contracts. The model incorporates the revenue-sharing contract into the incomplete contract frameworks of Grossman-Hart-Moore Property Rights Theory and the Transaction Cost Theory of the firm, and emphasizes the impact of expropriation. Joint control can be optimal as well as unilateral control. Our econometric analysis of the revenue-sharing and control arrangements o?ers strong support to our Property-Rights-Theory motivated model with self investment but rejects that with cooperative investment. The Transaction-Cost-Theory motivated model leaves some important empirical findings unexplained. Our findings also reject some of the existing theories of joint ownership.

Contractual incompleteness and the optimality of equity joint ventures

Firms engaged in the pooling of complementary skills often choose the Equity Joint Venture (EJV) over alternative profit-sharing arrangements. This paper addresses the issue of how equity shares are different from profit shares. It is shown that, in settings of contractual incompleteness, marketable equity ownership, when compared to non-transferable profit-sharing contracts, provides better ex ante incentives to the parties involved by mitigating ex post hold-up problems. Among other things, the prevalence of the 51–49 or 50–50 EJV in which one party has 51 percent (or 50 percent) equity shares is explained.

Bargaining, Bonding, and Partial Ownership

This article provides a theory of interfirm partial ownership. We consider a setting in which an upstream firm can make two alternative types of investment: either specific investment that only a particular downstream firm can use or general investment that any downstream firm is capable of using. When the benefits from specific and general investments are both stochastic, equity participation by the downstream firm in the upstream firm can lead to more efficient outcomes than take-or-pay contracts. The optimal ownership stake of the downstream firm is less than 50 percent under a natural assumption about relative bargaining power.

A Multi-Task Theory of the State Enterprise Reform

During transition, maintaining employment and providing a social safety net to the unemployed are important to social stability, which in turn is crucial for the productivity of the whole economy. Because independent institutions for social safety are lacking and firms with strong profit incentives have little incentives to promote social stability due to its public good nature, state-owned enterprises (SOEs) are needed to continue their role in providing social welfare. Charged with the multi-tasks of efficient production as well as social welfare provision, SOEs continue to be given low profit incentives and consequently, their financial performance continues to be poor.

On the organization of cooperative research and development: Theory and evidence

Abstract It has become increasingly prevalent that business firms, often rival firms, join forces in cooperative R and D to develop new technologies that they can use in their downstream business. Equity research joint ventures and non-equity co-development are the two major modes of organization, and they differ in how ownership rights over newly developed technologies are assigned. This paper addresses the question of when cooperative R and D should be carried out in a research joint venture as opposed to a co-development program. In a setting of contractual incompleteness, the nature of the downstream business of participating firms is shown to determine the organization of cooperative R and D. Empirical evidence that is consistent with the theoretical analysis is also presented.

How Do Exporters Respond to Antidumping Investigations

Using monthly transaction data covering all Chinese exporters over the 2000-2006 period, we investigate how Chinese exporters respond to U.S. antidumping investigations. We find that antidumping investigations cause a substantial decrease in the total export volume at the HS-6 digit product level, and that this trade-dampening effect is due to a significant decrease in the number of exporters, yet a modest decrease in the export volume per surviving exporter. We also find that the bulk of the decrease in the number of exporters is exerted by less productive exporters, by direct exporters as opposed to trade intermediaries, and by single-product direct exporters as opposed to their multi-product counterparts. Combined with the existing studies on the effects that antidumping investigations have on protected firms, our study helps piece together a complete picture of the effects of antidumping investigations.