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

question 45

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]

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Definitions:

Flexibility

The ability to adapt, change or be modified to suit new conditions or situations.

Selection Method

The process or technique used by organizations to choose the most suitable candidates from a pool of applicants.

Psychological Testing

The use of formal tests to evaluate an individual's mental functions and behaviors, often used in the hiring process to assess potential employees.

Structured Interview

A selection interview that consists of a predetermined set of questions for the interviewer to ask.