ABSTRACT
This chapter provides a convincing explanation of why such a two-tier principal-agent organizational form has been shaped in Township and Village Enterprises (TVEs’) governance, and why such an organizational form seems more vigorous than other forms. It discusses the dual role that local community government leaders have been playing in China’s rural organization. The chapter describes the objectives and incentives of local leaders in their enthusiastic commitment to the TVE movement. It provides a theoretical explanation to the reason why community public ownership of collective TVEs is superior to state public ownership according to property rights theories. The chapter illustrates the comparative advantage of having community governments as the de facto owners of collective TVEs as compared with privately owned TVEs. It describes the re-delegation of the control rights from the community government to the firm manager, and the constitution of TVE managers as a newly emerging class in rural China.
