A large literature has documented impressive productivity growth in China's state enterprises during the reform. The evidence has been used to support the view that China's enterprise reform has been successful. We cast doubt on this view by arguing that productivity is not a reliable measure of...

This paper studies the soft budget constraint problem in a principal-agent model. The agent screens projects of and makes initial investment in the projects that have passed the screening. He then finds the types of the funded projects and decides to close some of the ex post inefficient ones...

An equilibrium model of labor contracts under asymmetric information is developed. A profit-maximizing firm offers a wage but retains the right to lay off the worker based on its private observation of the worker's productivity ex post. The worker invests in specific human capital, unobservable...

This paper provides a theoretical framework to analyze workers' incentives under different ownership. It shows that the workers' effort and expected income are higher and the monitoring intensity is lower in the employee-owned firm than in the capitalist firm. Unlike in previous models, the...

Arnott and Stiglitz (1993) have argued that, in competitive insurance markets with moral hazard, equilibrium may entail firms offering latent policies--policies that are not bought in equilibrium but are kept in place to deter entry. This paper provides an extended example of such an...

An equilibrium model of labor contracts under asymmetric information is developed. It is shown that productivity uncertainty has adverse effects on firm's wage offer to a worker, workers investment in firm specific human capital employment stability, and average productivity. Observation of and...

This paper analyzes a model with many homogeneous agents, whose effort can be allocated to two tasks. One task produces a public good that is an important input for the production of the final output. The other task only affects the agent's own output. We show that, when the public input and the...

This paper develops a general framework to analyze the relationship between a firm's capital structure and its product market strategy and presents a taxonomy of whether debt makes a firm tough or soft in product market competition and how strategic considerations affect the leverage of a firm...

We construct an agency model in which the planner (agent) makes project starting and termination decisions on behalf of the state (principal) to reflect the practice of socialist economies. The model shows that asymmetric information between the state and the planner regarding the quality of...