Law, Chinese Style: Solving the Authoritarian’s Legal Dilemma Through the Private Provision of Law

Lizhi Liu (Georgetown University)
Barry R. Weingast (Stanford University)

Abstract : How do authoritarian states build the legal infrastructure (e.g. property rights, contract enforcement, and the rule of law) necessary to support efficient markets? The market legal infrastructure is often weak due to an “authoritarian’s legal dilemma.” Autocrats avoid creating an independent judiciary strong enough to supply private law (e.g., property rights, contract enforcement), because the same judiciary cannot credibly commit to not strengthening public law (e.g., citizen rights, constitution). We argue that China has devised a novel solution to this dilemma: by partially outsourcing the provision of private law to key private actors. In China’s 500-million-user e-commerce market, online trading platforms such as Taobao have privately supplied strong legal infrastructure to enforce contracts, prevent fraud, and settle disputes. These platforms not only enforce law but also help to reform formal legal institutions through rule experiments. This new route to legal development is politically viable and potentially generalizable to other developing countries.

Is What's Good for Business Also Good for the Market? Pro-business and Pro-market Policy Dynamics

Prateek Raj (IIM-Bangaglore)
Brian Kelleher Richter (UT Austin McCombs School of Business)
Mario Villarreal-Diaz (UT Austin McCombs School of Business)

Abstract : We build a process model in a new theoretical conceptualization of capitalist systems enhanced by new-institutionalist perspectives. Our rendering ultimately provides managers with a more tractable platform for decision-making than neoclassical models in economics, which largely ignore the role of government in setting the rules of the game. To construct our reconceptualization, we first define precisely what pro-business and pro-market policies underlying market-based systems look like at congruous levels of analysis. On that foundation, we build a process model illustrating pro-market tendencies within the business community, exploring their dynamics at different levels of product/service market maturity. Rounding out our reconceptualization, we recognize non-market actors typically omitted from neoclassical analyses and highlight the critical roles they play as pillars sustaining and supporting capitalist systems over the long run. We conclude with implications for managers and management education—as well as for the future of capitalism. In both the neoclassical paradigm and our enhanced rendering, managers remain self-interested; however, in our rendering astute managers ultimately seek positions that allow them to support market function rather than merely seeking positions that deteriorate market function as firms carve out ever more special privileges.

Beware of Strange Bed-fellows: Partnerships Between the State and Venture Capitalists in Managing Government Guiding Funds

Yifan Wei (University of Manitoba)
Nan Jia (University of Southern California)
Milo Wang (University of Alberta)

Abstract : Can the state leverage the expertise of venture investors while promoting high-value entrepreneurship? We provide evidence that the less extractive power a local government has, the more likely it is to achieve its goal by leveraging the expertise of higher-quality venture capital (VC) and private equity (PE) firms. The concerns about state extraction produce a larger deterrent effect on those potential VC/PE partners that have greater outside market opportunities, hence reducing the quality of the pool of candidate partners available to the state. We examine our hypotheses in the context of Government Guiding Funds (GGF) in China which aim to use public funds as seed money to increase investment in entrepreneurship in high-tech and emerging industries, and to hire VC/PE firms to manage the funds.

Leveraging Institutional Intermediaries: Entrepreneurial Strategies to Contact Investors on a Fundraising Platform

You (Willow) Wu (Stanford University)
Song Wang (Zhejiang University)
Charles E. Eesley (Stanford University)

Abstract : How do entrepreneurs leverage institutional intermediaries to acquire financial resources? We tackle this question by examining entrepreneurial strategies to contact investors on a fundraising platform. Using data from a Chinese platform that connects entrepreneurs with investors, we find that the effects of institutional intermediaries depend on how entrepreneurs leverage them. Specifically, we find that stepping-stone strategies are rewarded, whereas status-picking strategies are penalized online. Moreover, we find that stepping-stone strategies are more beneficial in less developed regions, whereas status-picking strategies are less penalized in more developed regions. This paper contributes to prior literature on institutional intermediaries, network tie formation, and platforms. First, while prior work focuses on how institutional intermediaries impact entrepreneurs, we explore how entrepreneurs leverage intermediaries. Second, we contribute to network dynamics by investigating sequential attempts for initial tie formation and discussing initial tie formation through online intermediaries. Finally, while prior work on platforms focuses on the strategy of platform providers, this paper examines the strategy of platform users.