THE LIMITS OF HIERARCHY: “ENTERPRISE CORPORATIONS” IN CHINA

In shifting from central planning to market allocation of resources, a number of Chinese government organs were converted into “enterprise corporations,” hybrid governance structures which were supposed to attain the best of both market incentives and hierarchical coordination. This paper examines specific cases of enterprise corporations in light of the trade‐offs between markets and hierarchies predicted by transaction cost economics. It analyzes the problems which arose in the attempt to replicate the high‐powered incentives of markets within hierarchies.