When China Reformed State-Owned Enterprises,it Tried a New Approach to Choosing

Essay

When China reformed state-owned enterprises,it tried a new approach to choosing managers: it put managerial jobs up for auction.The bids for the jobs consisted of promises of future profit streams that the managers would generate and then deliver to the state.A simple regression analysis showed that in cases where the incumbent manager was the winning bidder,firm productivity tended to increase dramatically.When outside bidders won,there was little productivity improvement.How can we explain this surprising result?
[The above question is inspired by McMillan,J.(1996).Games,Strategies,and Managers: How Managers Can Use Game Theory to Make Better Business Decisions.New York: Oxford University Press,USA]