A Theory of Ambiguous Property Rights in Transition Economies: The Case of the Chinese Non-State Sector

Abstract

Can ambiguous property rights sometimes be efficient? Ambiguous property rights arise when owners’ rights are not guaranteed beforehand. Instead, owners have to fight for actual control, ex post. We show that China's highly successful non-state sector is a major example of ambiguous property rights. We then propose a theory of ambiguous property rights, which argues that ambiguous property rights arise due to an imperfect market environment. We argue that the immature market environment in China makes ambiguous property rights often more efficient than unambiguously defined private property rights.