¹ See, for example, Gelb, Alan, Jefferson, Gary, and Singh, Inderjit, “Can Communist Economies Transform Gradually: The Experience of China,” in Blanchard, Olivier and Fischer, Stanley, eds., NBER Macroeconomics Annual 1993 (Cambridge: MIT Press, 1993)Google Scholar; McMillan, John and Naughton, Barry, “How to Reform a Planned Economy: Lessons from China,” Oxford Review of Economic Policy 8 (Spring 1992)CrossRefGoogle Scholar; McKinnon, Ronald I., “Gradual versus Rapid Liberalization in Socialist Economies: The Problem of Macroeconomic Control,” including comments by Anders Aslund and Jacek Rostowski, Proceedings of the World Bank Annual Conference on Development Economics (1993)Google Scholar; Sachs, Jeffrey and Woo, W. T., “Structural Factors in the Economic Reforms of China, Eastern Europe and the Former Soviet Union,” Economic Policy 18 (April 1994)Google Scholar; Woo, Wing Thye, “The Art of Reforming Centrally Planned Economies: Comparing China, Poland, and Russia,” Journal of Comparative Economics 18 (June 1994)CrossRefGoogle Scholar.

² Gelb, Jefferson, and Singh (fn. 1), 128. They refer to this rather imprecisely as “perestroika” before “glasnost*.” Such a formulation implies that this separation and sequencing of political and economic reform is the result of explicit choices by central authorities.

³ Another analysis suggesting that the nature of political and economic reforms could directly undermine state capacities is Nee, Victor and Lian, Peng, “Sleeping with the Enemy: A Dynamic Model of Declining Political Commitment in State Socialism,” Theory and Society 23 (April 1994)CrossRefGoogle Scholar. Nee and Lian argue that political reform in the Soviet Union proceeded “too quickly, so that monitoring capacity weakened greatly,” an assessment that is wholly consistent with the model presented here.

⁴ Bureaucratic models were particularly prevalent in studies of Soviet industrial planning and management. These works tended to emphasize the coordination problems inherent in any system of central planning and the consequent perverse incentives faced by industrial managers. See, for instance, Berliner, Joseph S., Factory and Manager in the USSR (Cambridge: Harvard University Press, 1957)CrossRefGoogle Scholar; Hewett, Edward A., Reforming the Soviet Economy: Equality versus Efficiency (Washington, D.C.: Brookings Institution, 1988)Google Scholar; Nove, Alec, The Soviet Economic System (Boston: Allen and Unwin, 1980)Google Scholar; Kornai, Janos, The Socialist System: The Political Economy of Communism (Princeton: Princeton University Press, 1992)CrossRefGoogle Scholar; and Gustafson, Thane, Crisis amid Plenty: The Politics of Soviet Energy under Brezhnev and Gorbachev (Princeton: Princeton University Press, 1989)Google Scholar. Political scientists extended organizational analyses into more general models of the Soviet system, with an analogous emphasis on the nature of “informal adjustive mechanisms” employed by actors to compensate for the fundamental weaknesses of overbureaucratization. For a synoptic review of this literature, see Hough, Jerry F., “The Bureaucratic Model and the Nature of the Soviet System,” in Hough, , ed., The Soviet Union and Social Science Theory (Cambridge: Harvard University Press, 1977)CrossRefGoogle Scholar.

⁵ Eggertsson, Thrainn, Economic Behavior and Institutions (New York: Cambridge University Press, 1990), 41CrossRefGoogle Scholar. See also Tirole, Jean, “Hierarchies and Bureaucracies: On the Role of Collusion in Organizations, Journal of haw, Economics and Organization 2, no. 2 (1986)Google Scholar.

⁶ Arrow, Kenneth, “The Economics of Agency,” in Pratt, John and Zeckhauser, Richard, eds., Principals and Agents: The Structure of Business (Boston: Harvard Business School Press, 1985), 38–40Google Scholar. For a review of the basic literature on agency, see Stiglitz, Joseph E., “Principal and Agent,” in Eatwell, John, Milgate, Murray, and Newman, Peter, eds., The New Palgrave: Allocation, Information and Markets (New York: W. W. Norton, 1989)Google Scholar; Sappington, David E. M., “Incentives in Principal-Agent Relationships,” Journal of Economic Perspectives 5, no. 2 (1991)CrossRefGoogle Scholar; and Eggertsson (fn. 5), 40–45. Analyses of the principal's problem that stress asymmetric infqrmation—and the resultant need to restrain the agent from opportunistically exploiting this information advantage—include Miller, Gary, Managerial Dilemmas: The Political Economy of Hierarchy (New York: Cambridge University Press, 1992)CrossRefGoogle Scholar; and Ross, Stephen, “The Economic Theory of Agency: The Principal's Problem,” American Economic Review 63 (May 1973)Google Scholar.

⁷ Kornai, for instance, describes four typical indicator-adjustment strategies employed by reformers seeking to “perfect” the planning system; see Kornai (fn. 4), 405.

⁸ Anthony Downs considered the fact that “the major portion of its output is not directly or indirectly evaluated in any markets external to the organization by means of voluntary quid pro quo transactions” to be a defining feature of any bureau. See Downs, , Inside Bureaucracy (Boston: Little, Brown, 1967), 26CrossRefGoogle Scholar.

⁹ Litwack, John M., “Ratcheting and Economic Reform in the USSR,” Journal oj Comparative Economics 14 (June 1990)Google Scholar; idem, “Discretionary Behavior and Soviet Economic Reform,” Soviet Studies 43, no. 2 (1991)Google Scholar. Though prominent in discussions of centrally planned economies, Litwack argues that the “ratchet problem” occurs in any principal-agent model featuring asymmetric information, in which principals “cannot or do not commit themselves to long-run incentive schemes or tax schedules.” Where present, the ratchet problem invalidates the assumption of Niskanen and others that bureau chiefs can be modeled as budget maximizers. See Niskanen, William A., Bureaucracy and Representative Government (Chicago: Aldine, 1971)Google Scholar.

¹⁰ See, for instance, Berliner, Joseph, The Innovation Decision in Soviet Industry (Cambridge: MIT Press, 1976), 404, 440Google Scholar; or Rutland, Peter, “Economic Management and Reform,” in Pravda, Alex, White, Stephen, and Gitelman, Zvi, eds., Developments in Soviet Politics (Durham, N.C.: Duke University Press, 1990), 168Google Scholar.

¹¹ For the demonstration of this assertion for the case of utility-maximizing agents facing the financial and planning environments common to Soviet enterprise managers, see Furubotn, Eink G. and Pejovich, Svetozar, “The Soviet Manager and Innovation: A Behavioral Model of the Soviet Firm,” in Furubotn, and Pejovich, , eds., The Economics of Property Rights (Cambridge, Mass.: Ballinger, 1974)Google Scholar. James Dearden, Barn- Ickes, and Larry Samuelson reach related conclusions by distinguishing between incentives for agents to innovate (which can be significant) and the incentives for them to adopt innovations once they become publicly available (which are less powerful). See Dearden, , Ickes, , and Samuelson, , “To Innovate or Not to Innovate: Incentives and Innovation in Hierarchies,” American Economic Review 80 (December 1990)Google Scholar.

¹² Jensen, Michael C. and Meckling, William, “Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure,” Journal of Financial Economics 3 (October 1976), 351CrossRefGoogle Scholar.

¹³ See, for instance, Radner, Roy, “Repeated Principal-Agent Games with Discounting,” Econometrica 53 (September 1985)CrossRefGoogle Scholar; Tirole, Jean, “The Mulricontract Organization,” Canadian Journal of Economics 21 (August 1988)CrossRefGoogle Scholar; Fudenberg, Drew, Holmstrom, Bengt, and Milgrom, Paul, “Short Term Contracts and LongTerm Relationships,” Journal of Economic Theory 51 (June 1990)CrossRefGoogle Scholar.

¹⁴ These findings are nicely summarized in Sappington (fn. 6), 59.

¹⁵ The literature on economics of property rights is extensive; see Eggertsson (fn. 5), 33–37, for a review of basic principles. In this discussion, I reject the assertion made by Barzel that a “property rights approach” is somehow distinct and separate from “agency theory.” See Barzel, Yoram, Economic Analysis of Property Rights (Cambridge: Cambridge University Press, 1989), 11Google Scholar.

¹⁶ Arrow, Kenneth J., The Limits of Organization (New York: W. W. Norton, 1974), 64Google Scholar. He is paraphrasing Herbert Simon.

¹⁷ A parallel argument in which property rights are derived from de facto control over assets, rather than vice versa, is developed in Umbeck, John, “Might Makes Rights: A Theory of the Formation and Initial Distribution of Property Rights,” Economic Inquiry 19, no. 1 (1981)CrossRefGoogle Scholar. Umbeck considers property rights in weakly organized environments, but not within organizations.

¹⁸ Holmstrom, Bengt R. and Tirole, Jean, “The Theory of the Firm,” in Schmalensee, Richard and Willig, Robert, eds., Handbook of Industrial Organization (Amsterdam: Elsevier, 1989), 123Google Scholar.

¹⁹ The notion of “zone of acceptance” can be traced back to Barnard, Chester, The Functions of the Executive (Cambridge: Harvard University Press, 1938)Google Scholar. Barnard initially referred to a “zone of indifference,” but the concept was reformulated and relabeled by Herbert Simon. It can be thought of as that range of actions covered by the employment contract between principal and agent. On the zones of acceptance and neoinstinational analysis, see Williamson, Oliver, “Chester Barnard and the Incipient Science of Organization,” in Williamson, , ed., Organization Theory: From Chester Barnard to the Present and Beyond (New York: Oxford University Press, 1990)Google Scholar, esp. 175–76.

²⁰ Arrow (fn. 16), 64.

²¹ Moe, Terry, “Political Institutions: The Neglected Side of the Story” Journal of Law, Economics and Organization 6–S (1990)CrossRefGoogle Scholar.

²² Phil Roeder has proposed a model of “bureaucratic reciprocal accountability” to capture the phenomenon of appointed officials gaining power over the “selectorate” that appointed them; see Roeder, , Red Sunset (Princeton: Princeton University Press, 1993)Google Scholar. As Moe and others have discussed, however, it is not only in authoritarian systems that agents gain power over the principals who appointed them. Roeder's model does not explain how reciprocal accountability is transformed into hierarchical accountability or how either is enforced below the Central Committee level.

²³ Williamson, Oliver E., “Comparative Economic Organization: The Analysis of Discrete Structural Alternatives,” Administrative Science Quarterly 36 (June 1991), 274CrossRefGoogle Scholar.

²⁴ Holmstrom, Bengt, “Moral Hazard and Observability,” Bell Journal of Economics 10, no. 1 (1979)CrossRefGoogle Scholar; Holmstrom and Tirole (fn. 18), 88–92.

²⁵ The term was introduced by Kornai in 1980 and is summarized in Kornai (fn. 4), 140–45.

²⁶ Winiecki makes a similar point by arguing that the Soviet system protected the rents of key officials and industrial managers from any consequences of their job performance. See Winiecki, Jan, Resistance to Change in the Soviet Economic System: A Property Rights Approach (London: Routledge, 1991)Google Scholar.

²⁷ These characteristics are not exclusive to Soviet-type systems. Highly decentralized or dispersed nonmarket hierarchies like empires, public schools, or even the medieval Catholic church may display some similar characteristics. Though beyond the scope of this article, the model of disintegration described in the next section may also be useful in explaining organizational decay in these systems.

²⁸ Presumably some intangible assets, like reputation, will not be transferable.

²⁹ Nee and Lian (fn. 3) develop a similar scenario, based upon Granovetter's “threshold” model of collective behavior. According to their analysis, the likelihood of a Communist Party activist becoming an opportunist and defecting from the organization is strongly related to the extent of opportunism among other Party activists. They attribute this to the “demonstration effect” that spreads opportunism from higher ranking officials through the organization. In the model developed here, the observable opportunism of other agents may also provide still-loyal actors with new information about the viability of the parent organization and thus about the likelihood of receiving the “sucker's payoff” in the event of organizational collapse. This signaling effect of protest or defection—as distinct from more straightforward demonstration effects—is described for the phenomenon of mass protest in Lohmann, Susanne, “Dynamics of Informational Cascades: The Monday Demonstrations in Leipzig, East Germany, 1989–91,” World Politics 47 (October 1994)CrossRefGoogle Scholar.

³⁰ An alternative scenario could be the emergence of alternative or competing principals. For a general analysis of this phenomenon, see Epstein, David and O'Halloran, Sharyn, “The Multiple Principals Problem in Politics,” Political Economy Working Paper (New York: Columbia University, 1994)Google Scholar.

³¹ This discussion draws on Kreps, David M., “Corporate Culture and Economic Theory,” in Alt, James E. and Shepsle, Kenneth A., eds., Perspectives on Positive Political Economy (Cambridge: Cambridge University Press, 1990)Google Scholar, esp. 100–116.

³² See Selten, Reinhard, “The Chain Store Paradox,” Theory and Decision 9 (April 1978)CrossRefGoogle Scholar, as well as the subsequent discussions in Kreps, David and Wilson, Robert, “Reputations and Imperfect Information, Journal of Economic Theory 27 (August 1982)CrossRefGoogle Scholar; and Milgrom, Paul and Roberts, John, “Predation and Entry Deterrence,” Journal of Economic Theory 27 (August 1982)CrossRefGoogle Scholar.

³³ The discussion of reputation effects in this section draws on the discussions in Fudenberg, Drew and Tirole, Jean, Game Theory (Cambridge: MIT Press, 1991)Google Scholar, chap. 9; and Kreps, David M., Game Theory and Economic Modelling (Oxford: Oxford University Press, 1990), 65–72CrossRefGoogle Scholar. See also berg, Drew Fuden and Levine, David K., “Maintaining a Reputation When Strategies Are Imperfectly Observed,” Review of Economic Studies 59 (July 1992)Google Scholar; and Alt, James E., Calvert, Randall L., and Humes, Brian D., “Reputation and Hegemonic Stability: A Game-Theoretic Analysis,” American Political Science Review 82 (June 1988)CrossRefGoogle Scholar.

³⁴ Peter Hauslohner, for instance, considered the virtual elimination of the use of violence against members of the ruling elite to be one of the defining “rules” of post-Stalin politics. See Hauslohner, , “Politics before Gorbachev: De-Stalinization and the Roots of Reform,” in Bialer, Seweryn, ed., Politics, Society and Nationality inside Gorbachev's Russia (Boulder, Colo.: Westview Press, 1989)Google Scholar, esp. 44–48

³⁵ For standard accounts of the early Gorbachev reforms, see Hewett (fn. 4); Aslund, Anders, Gorbachev's Struggle for Economic Reform (Ithaca, N.Y.: Cornell University Press, 1989)Google Scholar; and Hewett, Ed and Winston, Victor, eds., Milestones in Glasnost and Peresfroika, vol. 2, The Economy (Washington, D.C.: Brookings Institution, 1991)Google Scholar.

³⁶ As Eugéne Zaleski has written, “It seems more nearly correct to call the [Soviet] economy ‘centrally managed’ rather than centrally planned.” See Zaleski, , Stalinist Planning for Economic Growth (Chapel Hill: University of North Carolina Press, 1980), 484Google Scholar.

³⁷ Johnson, Simon and Kroll, Heidi, “Managerial Strategies for Spontaneous Privatization,” Soviet Economy 7, no. 2 (1991)Google Scholar. The process was also observed and documented in East Central Europe (particularly Poland and Hungary), where the obvious economic advantages it accorded the political ruling class earned it the label “nomenklatura privatization.”

³⁸ Johnson and Kroll (in. 37). See also Fortescue, Stephen, “The Restructuring of Soviet Industrial Ministries since 1985,” in Aslund, Anders, ed., Market Socialism or the Restoration of Capitalism (New York: Cambridge University Press, 1992)Google Scholar. The neologism kontserny, from the English “concerns,” translates roughly as “conglomerates.”

³⁹ On the role of new banks, see Hellman, Joel, “Breaking the Bank: Building Market Institutions in the Former Soviet Union” (Ph.D. diss., Columbia University, 1993)Google Scholar; and Johnson, Juliet Ellen, “The Russian Banking System: Institutional Responses to the Market Transition,” Europe Asia Studies 46, no. 6 (1994)CrossRefGoogle Scholar.

⁴⁰ These policy concessions by Russian policymakers, consisting chiefly of expanded opportunities for management buyouts of privatizing firms, are described in McFaul, Michael, “State Power, Institutional Change, and the Politics of Privatization in Russia,” World Politics 47 (January 1995)CrossRefGoogle Scholar; and Boycko, Maxim and Shleifer, Andrei, “The Politics of Russian Privatization,” in Blanchard, Olivier et al., Post-Communist Reform: Pain and Progress (Cambridge: MIT Press, 1993)Google Scholar.

⁴¹ Bahry, Donna, “The Union Republics and Contradictions in Gorbachev's Economic Reform,” So viet Economy 7, no. 3 (1991)Google Scholar.

⁴² Berkowitz, Daniel and Mitchneck, Beth, “Fiscal Decentralization in the Soviet Economy,” Comparative Economic Systems 34 (Summer 1992)Google Scholar.

⁴³ Bahry (fn. 41), 247; Berkowitz and Mitchneck (fn. 42), 2. A budget for 1991 was eventually approved but rendered moot after revenue projections proved meaningless; see Tedstrom, John, “Soviet Fiscal Federalism in a Time of Crisis,” Report on the USSR 3, no. 31 (1991)Google Scholar.

⁴⁴ Some useful sources on the history of the Komsomol include Kassof, Allen, The Soviet Youth Program (Cambridge: Harvard University Press, 1965)CrossRefGoogle Scholar; Kenez, Peter, The Birth of the Propaganda State (Cambridge: Cambridge University Press, 1985)CrossRefGoogle Scholar; and Riordan, Jim, “The Komsomol,” in Riordan, , ed., Soviet Youth Culture (Bloomington: Indiana University Press, 1989)CrossRefGoogle Scholar. For an account of Komsomol under Brezhnev and Gorbachev, based in part on documents from the Komsomol archives, see Solnick, Steven, “Growing Pains: Youth Policies and Institutional Change in the Former Soviet Union” (Ph.D. diss., Harvard University, 1993), 103–218Google Scholar.

⁴⁵ By 1984 over half of all new members joining the Komsomol were fourteen year olds; VLKSM: Nagliadoeposobiepo komsomol'skomu stroitehtvu (Moscow: Molodai gvardiia, 1985)Google Scholar. Enrollment practices of local Komsomol organizations were criticized in a Communist Party resolution published in Pravda, July 7,1984.

⁴⁶ Poliakov, Iurii, “ChP raionnogo masshtaba,” Iunost', no. 1 (1985), 12–50Google Scholar. In the wake of the publication of this work and later the release of the film, public criticism of Komsomol poured into the press. For a typical sample of letters from disgruntled members, see Soiesednik, no. 38 (1986), 4–5Google Scholar.

⁴⁷ The abandonment of membership targets was announced by the new first secretary of Komsomol, Viktor Mironenko, in August 1986; reprinted in Mironenko, , Pis'mo sezdu (Moscow: VLKSM, 1987)Google Scholar. The new fiscal policies were announced at the Komsomol's Twentieth Congress, held in April 1987. They were initially introduced as a limited experiment in fifty-six large primary organizations butwere then extended throughout the organization over the next two years. By 1989 the budgetary and financial operations of each level of the Komsomol hierarchy were almost completely isolated. The reforms are reviewed in Komsomol i molodezb' Rossii (Delegatu s”exda komsomo Vskikh organizatsii RSFSR) (Moscow, 1990)Google Scholar (Brochure distributed to delegates at the first Conference of Komsomol Organizations of the Russian Federation).

⁴⁸ For typical accounts, see Larin, I., “Komsomol on the Verge of Change,” Argumenty ifakty, no. 12 (1987)Google Scholar; and David Remnick, “Brash New Breed ‘Building Empires, Not Evil Ones,’” Washington Post, July 7, 1991, p. 1.

⁴⁹ These maneuvers were revealed by Viktor Graivoronskii, a Moscow Komsomol official, in Moskovskii komsomolets, April 24, 1990.

⁵⁰ There can be little doubt that these moves were efforts to shield the center's assets from the forces of disintegration. Then first secretary of the Komsomol, Viktor Mironenko, asserted that no republican Komsomol committee that seceded from the organization could claim a share of any Central Committee investments in banks or stock-holding companies. (Interview with author, Moscow, March 20, 1991). At the time of this interview, the question was already far from academic, since several of these ventures (like Menatep) had become commercial giants, and the Lithuanian and Estonian Komsomol organizations had either shut down or broken away trom Moscow.

⁵¹ Nezavisimaia gazeta, September 7, 1991, p. 2.

⁵² This practice was also introduced in the Komsomol, but only after the bank run had already been triggered by internal fiscal reforms. Komsomol officials also faced a natural term limit in the form of age ceilings for most officials, so the impact of elections on incentives was less severe.

⁵³ The budgetary problems of the Party are reviewed in Izvestiia TsK KPSS, no. 8 (1990), 91–98Google Scholar. On budgets and also membership, see Teague, Elizabeth and Tolz, Vera, “CPSU R.I.P.,” Report on the USSR 3, no. 47 (1991)Google Scholar; and White, Stephen, Gill, Graeme, and Slider, Darrell, The Politics of Transition: Shaping a Post-Soviet Future (New York: Cambridge University Press, 1993), 117–39.CrossRefGoogle Scholar

⁵⁴ The story of the Party's massive “ruble launderette,” based on documents from the Central Committee archives, is described in Handelman, Stephen, Comrade Criminal (New Haven: Yale University Press, 1995), 93–114Google Scholar. Although these documents cover the Party's efforts to shield Central Committee funds, the fate of regional Party assets may never be known. The Party's treasurer, Nikolai Kruchina, committed suicide in the wake of the August 1991 coup.

⁵⁵ The literature on Chinese reform is vast. In addition to accounts cited in fn. 1 and specific citations in the text, I have also drawn more generally on Shirk, Susan L., The Political Logic of Economic Reform in China (Berkeley: University of California Press, 1993)Google Scholar; White, Gordon, Riding the Tiger: The Politics of Economic Reform in Post-Mao China (Stanford, Calif.: Stanford University Press, 1993)CrossRefGoogle Scholar; Hao, Jia and Zhimin, Lin, eds., Changing Central-Local Relations in China: Reform and State Capacity (Boulder, Colo.: Westview Press, 1994)Google Scholar; and Nee, Victor, “Organizational Dynamics of Market Transition: Hybrid Forms, Property Rights and Mixed Economy in China,” Administrative Science Quarterly 37 (March 1992)CrossRefGoogle Scholar.

⁵⁶ “Can the Centre Hold?” Economist, November 6, 1993, p. 32. See also the review of recent debates by Goodman, David S. G., “The Politics of Regionalism,” in Goodman, David S. G. and Segal, Gerald, China Deconstructs (New York: Routledge, 1994)CrossRefGoogle Scholar.

⁵⁷ See, for instance, Shirk (fn. 55), 175; and “Can the Centre Hold?” (fn. 56).

⁵⁸ Dali L. Yang, “Reform and the Restructuring of Central-Local Relations,” in Goodman and Segal (fn. 56), 87–89; see also New York Times, November 23, 1993, p. 1.

⁵⁹ On CCP reforms, see White (fn. 55), 170–97.

⁶⁰ Nee (fn. 55), 2, defines hybrids as organizational forms that “use resources and/or governance structures from more than one existing organization.”

⁶¹ Ibid., 11.

⁶² Oi, , “Fiscal Reform and the Economic Foundations of Local State Corporatism in China,” World Politics AS (October 1992), 100Google Scholar.

⁶³ Granick, David, Chinese State Enterprises: A Regional Property Rights Analysis (Chicago: University of Chicago Press, 1990), 48Google Scholar. Zhao Suisheng also traces the roots of local powers into the pre-Dengera, describing a pattern of decentralization and recentralization from 1957 through the 1970s; Suisheng, “China's Central Local Relationship: A Historical Perspective,” in Hao and Zhimin (fn. 55).

⁶⁴ Shirk (fn. 55), 150 fn. 2.

⁶⁵ Prior to the November 1993 CCP plenum, for instance, a significant number of provincial Party secretaries and governors were either rotated or retired, including the Party secretary of Jiangsu, China's richest province; see Yang (fn. 58), 86.

⁶⁶ Nee (fn. 55), 13.

⁶⁷ Shirk (fn. 55), 196. The term “quasi-ownership” is appropriate because the hybrid structure of the new rural enterprises assigned property rights to different organizations rather than to individuals. This position was advantageous either to a private businessman, who lacked the local official's control over supply networks, interregional trade, and tax rates, or to purely governmental actors, who collected fewer rents.

⁶⁸ See, for instance, the description by Wong, Christine P., “Fiscal Reform and Local Industrialization,” Afoirw China 18 (April 1992)Google Scholar, 216ff.

⁶⁹ This came to be known later as the Contract (or Enterprise) Responsibility System.

⁷⁰ Naughton, Barry, “Implications of the State Monopoly over Industry and Its Relaxation,” Modern China 18 (January 1992), 35CrossRefGoogle Scholar. The point is reinforced by Wong, Christine P. W., “Central-Local Relations in an Era of Fiscal Decline: The Paradox of Fiscal Decentralization in Post-Mao China,” China Quarterly 128 (December 1991)CrossRefGoogle Scholar.

⁷¹ Walder, Andrew, “Corporate Organization and Local Government Property Rights in China,” in Milor, Vedat, ed., Changing Political Economies: Privatization in Post-Communist and Reforming States (Boulder, Colo.: Lynne Rienner, 1994)Google Scholar. In the formulation advanced in Section II above, however, hierarchical authority is simply presented as a form of bilateral contracting, i.e., a chain of agency contracts. In either Walder's formulation or mine, however, the critical question is whether these “contracts” can be enforced by either actor.

⁷² Walder (fn. 71), 64.

⁷³ The center's share of tax revenues actually grew in the early 1980s and stabilized at about 30% (adjusted for borrowing) after the introduction of fiscal contracting in 1987. Though local governments tried various schemes to minimize their fiscal obligations to the center, they continued to “share up” revenues to Beijing. See Bahl, Roy and Wallich, Christine, “Intergovernmental Fiscal Relations in China,” Policy Research Working Paper WPS 863 (Washington, D.C.: World Bank, February 1992)Google Scholar; Wong (fn. 70), esp. 700–706; and Jia Hao and Wang Mingxia, “Market and State: Changing CentralLocal Relations in China,” in Hao and Zhimin (fn. 55), esp. 49–50.

⁷⁴ Yang, Dali L., “Policy Credibility and Macroeconomic Control in China” (Paper presented at the annual meeting of the American Political Science Association, Washington, D.C., 1993)Google Scholar; and Yang (fn. 58). See also Qian, Yingyi and Weingast, Barry R., “Beyond Decentralization: Preserving Federalism with Chinese Characteristics” (Manuscript, Stanford University, July 1994)Google Scholar; and Jia Hao and Lin Zhimin, “Introduction,” in Hao and Zhimin (fn. 55).

⁷⁵ In particular, Chinese authorities retained centralized control over heavy industry, which comprised a far smaller share of the Chinese economy than it did of the Soviet economy. Barry Naughton has called the Chinese approach “growing out of the Plan.”

⁷⁶ SeeOi(fn.62), 114.

⁷⁷ This point is based largely on the analysis in Wong (fn. 70).

⁷⁸ Huang, , “Information, Bureaucracy, and Economic Reforms in China and the Soviet Union,” World Politics 47 (October 1994), 134CrossRefGoogle Scholar.

⁷⁹ These findings are summarized at the beginning of Section IV.

⁸⁰ Wong (fn. 70), 711–13. Chinese reforms have also been criticized for unleashing massive corruption, but this was also characteristic of the Soviet reforms.

⁸¹ Nee (fn. 55), 6.

⁸² The anticorruption drives launched by Chinese leaders in the last year or two may accelerate this process if they convince local officials that their property rights may be made more secure by leaving their official posts, even at the cost of future rent-seeking opportunities.

⁸³ Nee (fn. 55), 8–22.

⁸⁴ Several techniques are described in Wang Shaogang, “Central-Local Fiscal Politics in China,” in Hao and Zhimin (fn. 55).

⁸⁵ In addition, Russian leaders have since 1992 been unable to build a reputation for retaliating against regional defiance. The debacle in Chechnya may only make matters worse by demonstrating the prohibitive cost of such retaliation.