Application Research Of Auction Theory On The Exchange Of The State Owned Enterprise's Property Rights

Pricing is the theme of auction theory. The mechanism design for optimal auction is to help the seller maximize expected revenue in the trades with buyers. The essential question concerning the exchange of the state owned enterprise's (SOE's) property rights is how the price should be formed. Due to the particularity of SOE's property rights, it is far difficult to price the SOE than to price other ordinary goods. On one hand, the exchange of SOE's property rights involves the benefits readjustments of different stakeholders who have conflicting interests, making it hard for the transaction to proceed smoothly. On the other hand, as the SOE's agent is the actual operator and controller of the property rights exchange, when there is inadequate supervision for him, the trade would easily become distorted by the agent's moral hazard or even corruption. Therefore, the design of the SOE auction mechanism, should not only consider the price as well as the non-price factors, such as the appropriate accommodation of the employees, the future development outline of the enterprise etc, to pay balanced attention to the interests of different stakeholders, but also should consider how to effectively motivate and restrict the behavior of the SOE's agent in the property rights exchange. Applying the most advanced research findings of auction theory to design the trading mechanism of the SOE's property rights in China, the train of thought and main conclusion of this thesis are as follows:Firstly, based on the real SOE's property rights exchanges in China, this thesis constructs an elementary analytical framework of SOE auction. Without considering the non-price factors (Assumption 1) and the principal-agent problem in the SOE's property rights exchange (Assumption 2), the benchmark model analyzes the optimal behavior of the SOE's seller as well as its buyer in both English auction and the first price sealed bidding, which sets up the foundation for the design of the SOE trading mechanism that fits for China's practice. It finds that under the assumption of the benchmark model, English auction and the first price sealed bidding can generate the same expected revenue for the seller and both of the mechanisms can transfer the SOE to the investor that values it most, consequently realize the efficient allocation of the SOE's property rights.Secondly, giving up Assumption 1 of the benchmark model, this thesis then considers the non-price factors in the SOE privatization auctions. Taking the employees'accommodation as an example, it constructs a SOE bidding mechanism with employment constraint. By adding that the new owner of the selling enterprise is required to accommodate a certain quantity of former SOE employees, the mechanism can help to realize the dual-objective of maximizing SOE auction revenue and minimizing induced unemployment. It finds that adding the employment constraint will lead to the decrease in auction revenue. However, by setting the optimal quantity of employees that are needed to be accommodated, the mechanism can resolve employees'rearrangement within the process of property rights exchange, and some workers can be retained in the new enterprise, which can exert the employees'specialized human capital after privatization and consequently lower the social cost of the property rights reform. All these advantages can not be realized by other methods of solving the problem of SOE employees'accommodation. However, whether the constraint can take effect as expected depends on what kind of attitude the SOE seller puts on the non-price factors. In the example of employees'accommodation, the government should appear strong to the labor settlement until the benefit by stressing on it is offset by the loss caused by the reduction in auction revenue. Besides, if the government can set an explicit compensation standard to reduce the accommodating cost dispersion of different investors, and introduce more strategic investors with considerable heterogeneity to participate in the auction, its dual-objective can be well balanced.Thirdly, giving up Assumption 2 of the benchmark model, this thesis then considers the agent's moral hazard problem in the SOE's property rights exchange. It emphasizes that it should be carried out from two aspects, incentive and restriction, to steer the agent's behavior in order that he would stand on the position of the SOE's owner to maximize the transfer revenue of the SOE's property rights. With respect to incentive, appropriate rewards should be provided to the SOE agent to increase the opportunity cost of pursuing his private benefits, which will dispel the enthusiasm for moral hazard and corruption. With respect to restriction, if the agent intends to discriminate different investors in the SOE auction, i.e. there is a tendency that the agent would collude with some investors, then it must be reqired that the agent should provide the reason for such kind of discrimination. When the principal of the SOE authorizes the agent to sell the property rights, he should offer some free discretion to the agent, but the discretion can be never excessive, otherwise the agent would use this power to engage in rent-seeking activities. In the SOE auction, it is necessary to specify explicitly the rights and the obligations of the agent to ensure the transaction being carried out on the basis of market principle.Fourthly, after the theoretical analysis, the thesis then discusses the effect of the SOE auction in practice. Comparing auction with negotiation, another equally widely used SOE selling mechanism, it finds that as the competition encountered by the investors of the SOE's property rights in auction is fiercer than that in negotiation, the gain of trade, both in the price aspect and the non-price aspect that the seller is able to extract in auction is more than that in negotiation. This result indicates that it is of great importance to strengthen the competition among the buyers of the SOE's property rights. Another advantage of the SOE auction is that it is usually implemented more openly and more transparently, hence the supervision for the SOE agent in aution will become more efficient. Admittedly however, the SOE auction also has some limitations, and the thesis has provided the solutions for them.In conculsion, to design the selling mechanism of the SOE's property rights, both in line with China's practice and in line with the market principle, it is required to apply the auction theory flexibly: according to the specific transaction object and trading environment, the design should adjust measures to different situations.