Theory of 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 incentive 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 multitasks of efficient production as well as 1 This is a revised version of our earlier working paper titled "State Enterprises in Transition: A Multi-Task Perspective." We thank John Bonin, two anonymous referees, and participants of the William Davidson Institute's 1997 Workshop and the 1997 AEA Meetings for their many helpful comments. We also thank Roger Gordon, Yingyi Qian, Ge Β΄rard Roland, Jan Svejnar, and Chenggang Xu for earlier discussions on the topic. Partial financial support from the URC research grant of HKU (Chong-En Bai), DAG99/00/BM24 and the Chinese SOE project of the HLCOR of the HKUST (David Li), the Research Grants Council of Hong Kong (Zhigang Tao), and the Graduate School's Grant-in-Aid, University of Minnesota (Yijiang Wang) are gratefully acknowledged.