Socialist Egalitarianism and the Agency Problem in China's Economic Reform

Abstract

This paper analyzes empirical consequences of inter-firm egalitarianism in the implementation of the profit retention and bonus payment systems in China's economic reform since 1978. It is shown that due to the emergence of hierarchical collusion among the local state organs, the manager, and the worker, retained profits and bonuses per worker became more or less levelled across firms. As a result, final firm and worker benefits were very weakly related to actual firm performance.