risk aversion and the intertemporal behavior of asset prices in this article we characterize economies in which both cash flows and forward prices follow random walks we show in the case of geometric random walks that the preferences of the representative investor are of the constant proportional risk aversion type we also show the conditions under which spot prices follow random walks and under which the equivalent martingale measure is non state dep endent

risk neutral parameter shifts and derivatives pricing in discrete time we obtain a large class of discrete time risk neutral valuation relationships or preference free derivatives pricing models by imposing a simple restriction on the state price density process the risk neutral stock return and forward rate dynamics are obtained by changing only a location parameter which can be determined independent of the preference and true location parameters the gaussian models of rubinstein 1976 brennan 1979 and c mera 2003 and the gamma model of heston 1993 are all special cases the model provides simple relationships between expected returns and state price density parameters analogous to the diffusion case

law enforcement and transition abstract we present a simple model to analyze law enforcement problems in transition economies law enforcement implies coordination problems and multiplicity of equilibria due to a law abidance and a fiscal externality we analyze two institutional mechanisms for solving the coordination problem a first mechanism which we call dualism follows the scenario of chinese transition where the government keeps direct control over economic resources and where a liberalized non state sector follows market rules the second mechanism we put forward is accession to the european union we show that accession to the european union even without external borrowing provides a mechanism to eliminate the bad equilibrium provided the accessing country is small enough relative to the european union interestingly we show that accession without conditionality is better than with conditionality because conditionality creates a coordination problem of its own that partly annihilates the positive effects of expected accession

a multidimensional approach to the influence of environmental marketing and orientation on the firm s organizational performance since it implies a reduction in the quality and the quantity of the natural resources environmental degradation is a present day problem that requires immediate solutions this situation is driving firms to undertake an environmental transformation process with the purpose of reducing the negative externalities that come from their economic activities within this context environmental marketing is an emerging business philosophy by which organizations can address sustainability issues moreover environmental marketing and orientation are seen as valuable strategies to improve a firm s competitiveness however the literature that has analyzed the link between environmental strategies and firms results has been inconclusive and contradictory in this study we propose and test a model that analyses how the implementation of ecological issues within a firm s marketing strategy and orientation influences organizational results data were obtained through a survey sent to spanish manufacturing firms the results show that environmental marketing positively affects firms operational and commercial performance and this improvement will influence their economic results moreover environmental marketing is revealed as an excellent strategy to obtain competitive advantages in costs and in product differentiation thus this study agrees with the researchers who affirm that environmental strategies positively affect firm s competitiveness while reducing environmental impact

on viable diffusion price processes of the market portfolio the assumption that the market portfolio follows a specified diffusion process implies in a simple equilibrium framework that the representative individual must have a certain utility function which is identified in the paper not every diffusion process is viable i e can be endogenized to be the market portfolio s price process in such an equilibrium model the paper provides necessary and sufficient conditions for viability which imply that viable diffusion processes constitute a rather restricted family it is common in financial economics especially in the option pricing literature to take a certain price dynamics of an underlying asset as a primitive assumption the results are then seemingly preference free but it is known that if one wishes to embed such a partial equilibrium model in a general equilibrium framework this can be obtained only with certain individuals preferences for example the black scholes 1973 model in which the underlying asset follows a geometric brownian motion is known to be consistent with utility functions which exhibit constant proportional risk aversion cpra see rubinstein 1976 breeden and litzenberger 1978 brennan 1979 stapleton and subrahmanyam 1984 and bick 1987 by this we mean that if the market portfolio follows a geometric brownian motion then necessarily the utility function of the representative individual exhibits cpra conversely one can construct a simple economy with a stock and a riskless bond where identical individuals have cpra type utility functions and where the endogenous stock price enumerated by the bond follows a prespecified geometric brownian motion however the utility function which corresponds in equilibrium to a general diffusion process has never been identified this was the initial motivation for this paper the problem loosely stated is as follows suppose we are told that in a simple equilibrium model as above the market portfolio follows a given diffusion process what does it imply regarding individuals preferences it is clear that the problem is not well formulated if a dividend process is also postulated e g as in merton 1973 1977 in this case consistency with two processes the price process and the dividend process is to be required this

going one s own way drivers in developing business models for sustainability business models have received much attention in recent years due to their importance in the fundamental logic of every company this paper is based on a qualitative empirical research study conducted in cooperation with 10 austrian companies in 2014 it aims to investigate business models for sustainability in order to better understand how they operate and what the drivers for developing these business models are this is a cross industry sample covering companies showing notable sustainability activities in fact half of the companies were founded with the intention of complying with sustainability principles the results show that business models incorporating aspects of sustainability do not differ substantially from traditional business models however they do require specific adaptations and extensions furthermore the findings highlight the significance of company leaders in organizing change processes so as to encompass sustainable business practices the findings reveal that business models undergo constant change and that sustainability plays a central role both internally and externally the results gained allow for a deeper understanding of the motivational aspects and drivers needed in developing business models for sustainability and serve as a solid basis for further research in this field

displaced diffusion option pricing this paper develops a new option pricing formula that pushes the underlying source of risk back to the risk of individual assets of the firm the formula simultaneously encompasses differential riskiness of the assets of the firm their relative weights in determining the value of the firm the effects of firm debt and the effects of a dividend policy with both constant and random components although this setting considerably generalizes the black scholes 1 analysis it nonetheless produces a formula via riskless arbitrage arguments that given estimated inputs is as easy to use as the black scholes formula

sustainability policy of construction contractors a review abstract sustainability is an issue of concern in many industrial sectors the construction industry is no exception the study described in this paper adopts a critical qualitative approach to investigate sustainability policy practices in the construction industry this approach includes a statement of principles sustainability reporting incorporated within a financial report and a stand alone sustainability reporting system the top international contractors listed by engineering news record enr were examined the results show that sustainability policy development varies from case to case in these companies but trends are emerging on common issues addressed the findings show a trend of increasingly level of disclosure of corporation s commitmnets an achievements on sustainability similarly the energy efficiency and conservation greenhouse gas emission reduction and integration of renewable energy resources into projects are among the common themes of these sustainability policies disclosed by construction contractors the construcion industry can learn from the energy sector that is advanced in sustainability reporting

expected returns risk premia and volatility surfaces implicit in option market prices abstract this article presents a pure exchange economy that extends rubinstein 1976 to show how the jump diffusion option pricing model of merton 1976 is altered when jumps are correlated with diffusive risks a non zero correlation between jumps and diffusive risks is necessary in order to resolve the positively sloped implied volatility term structure inherent in traditional jump diffusion models our evidence is consistent with a negative covariance producing a non monotonic term structure for the proposed market structure we present a closed form asset pricing model that depends on the factors of the traditional jump diffusion models and on both the covariance of the diffusive pricing kernel with price jumps and the covariance of the jumps of the pricing kernel with the diffusive price we present statistical evidence that these covariances are positive for our model the expected stock return jump and diffusive risk premiums are non linear functions of time

too many mothers in law abstract developing countries with low tax capacity may rely on predation to finance government functions government predation in turn is often accused of imposing a choking effect on state owned enterprises soes contributing to the latter s poor performance we formalize this choking effect as a problem of inefficient predation that arises from time inconsistency and show that having multiple government bodies supervising the same soe may mitigate this problem our theory provides an efficiency rationale for the chinese style of decentralization before 1978 and challenges the wisdom of china s recent enterprise reform that attempted to consolidate supervisory power

bribery inefficiency and bureaucratic delay abstract we examine bribery in a dynamic setting with a partially honest bureaucracy the presence of honest officials lowers the bribe that a corrupt official can extract from efficient applicants consequently efficient applicants may face delays in receiving licenses or may never receive licenses as inefficient applicants are serviced ahead of them an increase in the proportion of honest officials while directly increasing the incidence of socially optimal decisions can also induce greater inefficiencies misallocation and delay from corrupt officials as a result social welfare may be non monotonic in the proportion of honest officials and small differences in monitoring costs may lead to very different levels of corruption competition between officials can hurt efficiency its desirability depends on the prevalence of applicants ability to pay bribes

political decentralization and corruption evidence from around the world abstract how does political decentralization affect the frequency and costliness of bribe extraction by corrupt officials previous empirical studies using subjective indexes of perceived corruption and mostly fiscal indicators of decentralization have suggested conflicting conclusions in search of more precise findings we combine and explore two new data sources an original cross national data set on particular types of decentralization and the results of a firm level survey conducted in 80 countries about firms concrete experiences with bribery in countries with a larger number of government or administrative tiers and given local revenues a larger number of local public employees reported bribery was more frequent when local or central governments received a larger share of gdp in revenue bribery was less frequent overall the results suggest the danger of uncoordinated rent seeking as government structures become more complex

interjurisdictional capital mobility fiscal externality and a corrective subsidy abstract recent studies emphasize that local property taxation may result in inefficiently small amounts of local public spending this paper shows that the inefficiency can be traced to a fiscal externality when one jurisdiction increases its taxes it causes a flow of capital to other jurisdictions that increases their tax revenues the inefficiency can be corrected with a subsidy that internalizes the externality key empirical parameters determining the magnitude of the externality are identified illustrative calculations indicate that subsidy rates on the order of 40 might be required to achieve efficiency

budget spillovers and fiscal policy interdependence evidence from the states abstract this paper formalizes and tests the notion that states expenditures depend on the spending of similarly situated states we find that even after allowing for fixed state effects year effects and common random shocks among neighbors a state government s level of per capita expenditure is positively and significantly affected by the expenditure levels of its neighbors ceteris paribus a one dollar increase in a state s neighbors expenditures increases its own expenditure by over 70 cents

the role of the business model in capturing value from innovation evidence from xerox corporation s technology spin off companies this paper explores the role of the business model in capturing value from early stage technology a successful business model creates a heuristic logic that connects technical potential with the realization of economic value the business model unlocks latent value from a technology but its logic constrains the subsequent search for new alternative models for other technologies later on an implicit cognitive dimension overlooked in most discourse on the topic we explore the intellectual roots of the concept offer a working definition and show how the xerox corporation arose by employing an effective business model to commercialize a technology rejected by other leading companies of the day we then show the long shadow that this model cast upon xerox s later management of selected spin off companies from xerox parc xerox evaluated the technical potential of these spin offs through its own business model while those spin offs that became successful did so through evolving business models that came to differ substantially from that of xerox the search and learning for an effective business model in failed ventures by contrast were quite limited

notes on multiperiod valuation and the pricing of options a mean variance risk return tradeoff relationship is derived for the diffusion process limiting case of a state preference model with aggregate consumption serving as a pivotal variable the model is compared to other recent models along the dimensions of generality and tractable implementation the incorporation of stochastic interest rates in general equilibrium and arbitrage based valuation models is examined and an extension to earlier methods is discussed in connection with the implementation of robust general valuation procedures this paper develops an integrative discussion of some recent developments in the theory of multiperiod valuation our aim is not to survey the rapidly burgeoning literature in this area in an exhaustive way instead it is our goal to highlight some results of our own and others that have a bearing on judgments regarding promising and robust directions of enquiry in this area of research in doing so areas that have been particularly empnasized are 1 the incorporation of aggregate consumption as a pivotal variable in general and specialized multiperiod valuation formulae and 2 the incorporation of endogenized dynamics for the riskless rate of interest in black scholes 4 type option pricing methodology throughout our emphasis is on the internal consistency generality and simplicity of different models insofar as full information valuation in a general equilibrium context is concerned rather than on issues pertaining to empirical testing and econometric methodology the starting point for much of our analysis is rubinstein s 28 important paper on multiperiod valuation and hakansson s 15 related contributions in this paper rubinstein considers a multiperiod state preference model of general exchange equilibrium with no explicit modeling of production investment in order to develop pricing relationships linking the prices of elementary arrow

the valuation of multivariate contingent claims in discrete time models there are several examples in the literature of contingent claims whose payoffs depend on the outcomes of two or more stochastic variables familiar cases of such claims include options on a portfolio of options options whose exercise price is stochastic and options to exchange one asset for another this paper derives risk neutral valuation relationships rnvrs in a discrete time setting that facilitate the pricing of such complex contingent claims in two specific cases joint lognormally distributed underlying variables and constant proportional risk aversion on the part of investors and joint normally distributed underlying variables and constant absolute risk aversion preferences respectively this methodology is then applied to the valuation of several interesting complex contingent claims such as multiperiod bonds multicurrency option bonds and investment options

do local governments use their tax bases efficiently abstract this paper analyzes an economy with multiple governments and with mobility of individuals across jurisdictions where each government is constrained to raise revenue for public expenditures using distortionary taxes a government is said to be competitive if the total benefits and costs of its decisions including the excess burden are perceived to be internalized the competitive equilibrium allocations are not constrained efficient in general there exists another set of distortionary taxes and public expenditures such that when private sector behavior adjusts to maintain equilibrium all individuals in the economy are better off thus competitive decentralized decision making does not lead to an efficient use of the available tax instruments it is also shown that the source of the failure can be interpreted as a missing market and the form of the best decentralized remedy which involves pricing the tax base is derived

economic development legality and the transplant effect abstract we analyze the determinants of effective legal institutions legality using data from 49 countries we show that the way the law was initially transplanted and received is a more important determinant than the supply of law from a particular legal family countries that have developed legal orders internally adapted the transplanted law and or had a population that was already familiar with basic principles of the transplanted law have more effective legality than countries that received foreign law without any similar predispositions the transplanting process has a strong indirect effect on economic development via its impact on legality while the impact of particular legal families is weaker and not robust to alternative legality measures

the success and failure of reforms in transition economies this paper argues that an important reason why russia s performance and china s performance under capitalism have differed dramatically is that different arrangements governing the determination of prices and work practices evolved during the transition process in russia the arrangement which conferred monopoly rights to industry groups leftover from socialism prevented the adoption of better technology in china the arrangement that evolved contained no such monopoly elements the key factor in determining which arrangement evolved was the strength of the central government we put forth a model that implements these ideas and provide evidence in support of this theory

on equilibrium asset price processes in this article we derive necessary and sufficient conditions that must be satisfied by equilibrium asset price processes in apure exchange economy we examine a world in which asset prices follow a diffusion process asset markets are dynamically complete all investors maximize their state independent expected utility of consumption at some future date and investors have nonrandom exogenous income we show that it is necessary and suffcient that the coefficients of an equilibrium diffusion price process satisfy a partial differential equation and a boundary condition we also examine how the dynamics of asset prices are related to the shape of the representative investor s utility function through the boundary condition for example in a constant volatility economy the expected instantaneous return of the market portfolio is mean reverting if and only if the relative risk aversion of the representative investor is decreasing in terminal wealth

government in transition abstract the speed of economic reforms is not the only important determinant of the success of the transition to a market economy the transition of government from a communist state to an institution supporting a market economy is as critical survey evidence shows that russia lags significantly behind poland in the transition of its government which may account for its inferior economic performance despite adopting similar economic reforms i argue that the lack of turnover of old communist politicians and the creation of inappropriate electoral and fiscal incentives for these politicians may account for the poor performance of the russian government and suggest some strategies for improving the situation

an eco critical perspective on business models the value triangle as an approach to closing the sustainability gap abstract despite business models having been discussed thoroughly by academics there are still some epistemological and ontological issues that have yet to be resolved business models seem to have stalled at the technological era and have not fully engaged with the era of sustainability the purpose of our paper is to add a new lens and richness to sustainable business model research by building on the need for more interdisciplinary approaches this paper applies an eco critical approach to analyse the 20 most often cited business model frameworks we explore the conventional understanding of the business models based on the language applied and reflect on gaps in the current perspectives of sustainability the analysis shows that existing business model frameworks exclude natural and social aspects of organisational environment from the discussion and tend to neglect the interrelationships between economic and not economic actors as well as the intertemporal trade offs based on the results of the analysis we propose a new sustainable business model framework named value triangle which explicitly includes as core elements society incorporating the natural environment and future generations and three types of co created and co delivered value public partner and customer the value triangle together with the corresponding canvas is presented through a business case for sustainability represented by italian company loccioni the results show that the proposed business model framework and canvas allow managers to understand analyse and evaluate their business models along all three dimensions of sustainability economic social and environmental simultaneously such an understanding helps drive the field towards making a meaningful contribution to solving the un global challenges and sustainability agenda

federalism and the soft budget constraint the government s incentives to bail out inefficient projects are determined by the trade off between political benefits and economic costs the latter depending on the decentralization of government two effects of federalism are derived first fiscal competition among local governments under factor mobility increases the opportunity costs of bailout and thus serves as a commitment device the competition effect second monetary centralization together with fiscal decentralization induces a conflict of interests and thus may harden budget constraints and reduce inflation the checks and balance effect the authors analysis is used to interpret china s recent experience of transition to a market economy copyright 1998 by american economic association

commodity tax competition between member states of a federation equilibrium and efficiency we first describe regional market equilibria whereupon consumers of each region allocate their purchases of private goods between domestic and nondomestic ones according to the structure of relative prices taxes and transportation costs next regional optimal tax levels and public good quantities are derived the tax of the other region being held constant fiscal competition arises from the ability of one region in choosing its tax to alter the tax base of the other

tax rights in transition economies a tragedy of the commons abstract this paper develops the concept of tax rights to analyze the impact of fiscal institutions on economic development in transition economies a government s tax rights are poorly defined when it and other governments and agencies can unilaterally levy taxes on the same tax base existing evidence suggests that chinese local governments have gained more clearly defined tax rights than their russian counterparts using the big push model of industrialization murphy k shleifer a vishny r 1989 industrialization and the big push journal of political economy 95 1003 1026 within a common property resource framework we show that this difference in tax rights helps explain why china has been significantly more successful than russia

majority choice of tax systems in single and multi jurisdictional economies abstract we examine majority choice of tax instruments in an economy with heterogeneous households in our framework majority voting equilibrium exists despite the multidimensional policy choice set we examine single and multi jurisdictional economies we identify five competing incentives that influence choice of tax instruments equilibria generally entail a mixture of tax types with multiple jurisdictions strong reliance on head taxation in rich communities arises to deter poorer households from immigrating in spite of local incentives to use alternative tax instruments to redistribute wealth if relocation costs preclude inter community mobility the equilibrium tax system is fundamentally affected with redistribution incentives then dominating choice of instruments and tax rates limiting or eliminating head taxation fundamentally alters stratification public good provision levels and tax systems

a three input model of the spatial effects of a central city wage tax abstract this paper considers the short run and long run spatial effects on wages employment and business capital as functions of location of a localized increase in wage tax rates the model is most applicable to a central city that has a higher wage tax rate than the surrounding suburbs the inclusion of land as a third input in production significantly reduces the long run effects of a central city wage tax on employment near the central city boundary as compared with a model in which labor and capital are the only two inputs the short run effects are significantly less than the long run effects

a generalization of the brennan rubinstein approach for the pricing of derivatives this paper derives preference free option pricing equations in a discrete time economy where asset returns have continuous distributions there is a representative agent who has risk preferences with an exponential representation aggregate wealth and the underlying asset price have transformed normal distributions which may or may not belong to the same family of distributions those pricing results are particularly valuable a to show new sufficient conditions for existing risk neutral option pricing equations e g the blackscholes model and b to obtain new analytical solutions for the price of european style contingent claims when the underlying asset has a transformed normal distribution e g a negatively skew lognormal distribution a fundamental result in the valuation theory under uncertainty is that equilibrium asset prices depend on investors marginal utility functions in this framework assuming a discrete time trading model and asset returns with continuous distributions rubinstein 1976 and brennan 1979 are able to derive risk neutral valuation relations that is preference free option pricing equations with an implicit mean return equal to the interest rate these pricing results seem surprising but they simply explore the relationship between derivatives and their underlying asset the underlying asset has an absolute price and derivatives have relative prices in terms of the underlying asset price implying that in equilibrium all these prices depend on the risk premium of the underlying asset hence the price of the underlying asset can be used to eliminate the risk premium from the option pricing equations the risk neutral valuation relations might have interesting applications not only in financial investments but also in real assets and executive compensation plans these pricing results were obtained under restrictive conditions on preferences and distributions rubinstein 1976 obtains the black scholes model with constant proportional risk aversion cpra preferences he also assumes that aggregate consumption and the underlying asset are bivariate lognormally

an optimal taxation approach to fiscal federalism in a federal system of government each unit of government decides independently how much of each type of public good to provide and what types of taxes and which tax rates to use in funding the public goods in this paper we explore what types of problems can arise from this decentralized form of decision making in particular we describe systematically the types of externalities that one unit of government can create for nonresidents through both its public goods decisions and its taxation decisions the paper also explores briefly what the central government might do to lessen the costs of decentralized decision making

information quality and options microstructure researchers have long understood that information quality has an effect on price formation in the underlying asset market however option researchers have largely ignored the fact that information quality might also impact the options market this article characterizes the nature of the impact by showing how option prices and implied volatility levels are related to the forward looking information quality path this result follows from a noisy rational expectations model that abandons the normal distribution in favor of the gamma distribution but maintains the standard assumption of exponential utility thus the new model bridges the gap between the microstructure literature that relies so heavily on the normal exponential framework and the options literature that relies exclusively on models that are consistent with the limited liability of stock prices the model s tractability allows for a robustness check against the standard framework and provides a viable setting for analyzing the empirical implications of information quality for the options market jel d8 gl

invisible parameters in option prices this paper characterizes contingent claim formulas that are independent of parameters governing the probability distribution of asset returns while these parameters may affect stock bond and option values they are invisible because they do not appear in the optiqn formulas for example the black scholes 1973 formula is independent of the mean of the stock return this paper presents a new formula based on the log negative binomial distribution in analogy with cox ross and rubinstein s 1979 log binomial formula the log negative binomial option price does not depend on the jump probability this paper also presents a new formula based on the log gamma distribution in this formula the option price does not depend on the scale of the stock return but does depend on the mean of the stock return this paper extends the log gamma formula to continuous time by defining a gamma process the gamma process is a jump process with independent increments that generalizes the wiener process unlike the poisson process the gamma process can instantaneously jump to a continuum of values hence it is fundamentally unhedgeable if the gamma process jumps upward then stock returns are positively skewed and if the gamma process jumps downward then stock returns are negatively skewed the gamma process has one more parameter than a wiener process this parameter controls the jump intensity and skewness of the process the skewness of the log gamma process generates strike biases in options in contrast to the results of diffusion models these biases increase for short maturity options thus the log gamma model produces a parsimonious option pricing formula that is consistent with empirical biases in the black scholes formula

are financial development and corruption control substitutes in promoting growth abstract while financial development and corruption control have been studied extensively their interaction has not we develop a simple model in which low corruption and financial development both facilitate the undertaking of productive projects but act as substitutes in doing so the substitutability arises because corruption raises the need for liquidity and thus makes financial improvements more potent conversely financial underdevelopment makes corruption more onerous and thus raises the gains from reducing it we test this substitutability by predicting growth of countries and industries using measures of financial development lack of corruption and a key interaction term both approaches point to positive effects from improving either factor as well as to a substitutability between them the growth gain associated with moving from the 25th to the 75th percentile in one factor is 0 63 1 68 percentage points higher if the second factor is at the 25th percentile rather than the 75th the results show robustness to different measures of corruption and financial development and do not appear to be driven by outliers omitted variables or other theories of growth and convergence

federalism chinese style the political basis for economic success in china china s remarkable economic success rests on a foundation of political reform providing a considerable degree of credible commitment to markets this reform reflects a special type of institutionalized decentralization that the authors call federalism chinese style this form of decentralization has three consequences first it fosters competition not only in product markets but also among local governments for labor and foreign capital this competition in turn encourages local government experimentation and learning with new forms of enterprises regulation and economic relationships second it provides incentives for local governments to promote local economic prosperity finally it provides a significant amount of protection to local governments and their enterprises from political intrusion by the central government

firm dynamics and industrialization in the chinese economy in transition implications for small business policy abstract this article first presents a review of the development of different types of domestic enterprises state owned enterprise soes collectiveowned enterprises coes and other enterprises oes which include mainly private enterprises compared with other transition economies coes are actually an important source of china s rapid economic growth they are vaguely defined cooperative without a well defined ownership structure there is no equivalent organizational structure similar to coes in western economies the purpose of this article is to study the empirical relationship between the size of domestic enterprises including state owned enterprises collective owned enterprises and other enterprises and their firm dynamics growth by investigating whether they grow according to gibrat s law the majority of coes and oes were formed after the economic reform the rapid growth of these non state enterprises especially coes is actually the driving force behind the rapid development of the industrial sector our empirical results suggest that gibrat s law does not hold for all types of enterprises the rejection is especially strong for coes moreover small enterprises are growing faster than their larger counterparts in terms of employment and output this conclusion leads to at least three implications 1 there has been little research into the dynamics of soes and coes in an economy in transition our results not only help stimulate further research in this area but also provide information for designing policies to speed up the economic reforms 2 until now the chinese government has not had a comprehensive small business policy given our empirical results there is an implication for government policy prescription to achieve china s development targets of rapid industrialization and lower unemployment or underemployment the chinese economy can reap more dynamic benefits by breaking up a giant and inefficient enterprise especially inefficient soe into a number of smaller enterprises in addition more small enterprises also improve competition in the marketplace and force other inefficient soes to improve their performance further research should be undertaken to examine the viability of this policy 3 because coes are the majority of small manufacturing enterprises the rapid growth of coes after their formation that are simply the opposite of the type of private organizations the center of the central and east european reforms is rather surprising to academics although some hypotheses like cooperative culture and moral framework for rights are put forward to explain their superior performance the validity of such hypotheses has not been empirically tested yet this is a fruitful area for further research