Property rights and the nature of Chinese collective enterprises

This paper offers a rationale for gradual privatization in transitional economies through studying property rights structures and the nature of Chinese collective enterprises. First, we pose a puzzle for existing theories of property rights, and then we provide a theoretical model for determining the optimal ownership arrangements for transitional economies. This theory argues that ownership arrangements should be functions of the varying degrees of imperfection of the institutional environment. Hence, collective enterprises actually may dominate private ownership in the middle of transition. Thus, to make the transition process smooth, the economic environment before massive privatization must be improved first. (C) 2000 Academic Press.