Soft Budget Constraint, Strategic Delegation and Overcapacity of Chinese SOE
- 1 School of Economics, Nanjing Audit University, Nanjing, China
- 2 School of Economics, Nanjing Audit University, Nanjing, China
Abstract
Overcapacity has become a major obstacle to the healthy development of Chi na’s economy in recent years. Using a mixed oligopoly competition model, this paper studies how the government soft budget constraint and strategic delegation for State-Owned Enterprise (SOE) impact the capacity choice of SOE and private enterprise. Theoretical analysis shows that: 1) Generally, SOE tends to have excess capacity, while private enterprise tends to have undercapacity; 2) The government soft budget constraint and strategic delegation to SOE will not only aggravate the overcapacity of SOE, but the undercapacity of private enterprise. Based on the theoretical analysis, this paper puts forward policy recommendations on the issue of overcapacity for some industrial sectors in China.
- Barcena-Ruiz, J. C., & Garzon, M. B. (2007). Capacity Choice in a Mixed Duopoly under Price Competition. Economics Bulletin, 12, 1-7.
- Barcena-Ruiz, J. C., & Garzon, M. B. (2010). Endogenous Timing in a Mixed Duopoly with Capacity Choice. Manchester School, 78, 93-109. https://doi.org/10.1111/j.1467-9957.2009.02137.x
- Dagdeviren, H. (2016). Structural Constraints and Excess Capacity: An International Comparison of Manufacturing Firms. Development Policy Review, 34, 623-641. https://doi.org/10.1111/dpr.12168
- Davidson, C., & Deneckere, R. (1990). Excess Capacity and Collusion. International Economic Review, 31, 521-554. https://doi.org/10.2307/2527159
- Lu, Y., & Poddar, S. (2005). Mixed Oligopoly and the Choice of Capacity. Research in Economics, 59, 365-374. https://doi.org/10.1016/j.rie.2005.09.004
- Mathis, S., & Koscianski, J. (1997). Excess Capacity as a Barrier to Entry in the Us Titanium Industry. International Journal of Industrial Organization, 15, 263-281. https://doi.org/10.1016/0167-7187(95)01003-3
- Mulligan, R. F. (2017). The Multifractal Character of Capacity Utilization over the Businesscycle. The Quarterly Review of Economics and Finance, 63, 147-152. https://doi.org/10.1016/j.qref.2016.04.016
- Nakamura, Y. (2013). Capacity Choice in a Price-Setting Mixed Duopoly with Network Effects. Modern Economy, 4, 418-425. https://doi.org/10.4236/me.2013.45044
- Nishimori, A., & Ogawa, H. (2002). Public Monopoly, Mixed Oligopoly and Productive Efficiency. Australian Economic Papers, 41, 185-190. https://doi.org/10.1111/1467-8454.00158
- Ogawa, H. (2006). Capacity Choice in the Mixed Duopoly with Product Differentiation. Economics Bulletin, 12, 1-6.
- Pindyck, R. S. (1986). Irreversible Investment, Capacity Choice, and the Value of the Firm. American Economic Review, 78, 969-985. https://doi.org/10.3386/w1980
- Pirard, R., & Irland, L. C. (2007). Missing Links between Timber Scarcity and Industrial Overcapacity: Lessons from the Indonesian Pulp and Paper Expansion. Forecast Policy Economy, 9, 1056-1070. https://doi.org/10.1016/j.forpol.2006.10.003
- Wang, D., Wang, Y., Song, X. et al. (2018). Coal Overcapacity in China: Multiscale Analysis and Prediction. Energy Economics, 70, 244-257. https://doi.org/10.1016/j.eneco.2018.01.004
- Zhang, R. X. (2012). Study on Overcapacity Caused by Local Government Competition. Economic and Management Journal, 11, 28-34.