Y. Qian et al./ European Economic Review 43(1999)1085-1094 Europe. Why do we observe such differences? It is often claimed that the former Soviet system was too rigid while the Chinese system was more flexible. But wh are some institutions more fexible than others and how does this relate to differences in reform strategies? In this paper, we draw on our recent work in organization theory(Qian et al, 1997)to shed light on these questions The two former centrally planned economies of the Soviet Union and China were organized differently (Qian and Xu, 1993). The Soviet economy was rganized in specialized or functional ministries(e.g, mini tile etc. ) each controlling gigantic factories. This is known as 'branch organization Nove, 1980). In contrast, the Chinese economy has been organized since 1958 mainly on a geographical principle, known as regional organization(Granick, 1990). The Soviet organization resembled closely the U-form organization of business firms while the Chinese organization resembled that of the M-form organization( Chandler, 1962, Williamson, 1975 This paper focuses on the comparison of M-form and U-form organizations in coordinating changes in a team-theoretic framework. Using Milgrom and Roberts(1992)concept of 'design attributes, we analyze coordination as at tribute matching. In the context of business organizations, any product or n be viewed as the result of the assembling of complementary parts: assembling of the parts of a car or of a computer; synchronizing travel, accom- modation and logistics for a conference or a business meeting; assembling subroutines for a software packages; etc. Each part is characterized by its attributes: time, location, technical specifications such as size, weight and bits, etc. These complementary parts must be made to fit together. A product or a service is completed successfully only if the characteristics of each attribute of the various parts are matched successfully. For instance, the diameter of a screw must match that of a bolt; they must both meet certain standards of material resistance. They must be transported to a given location at a given time in order to be matched. Failure in the matching of attributes implies most often a drastic production failure. We assume that ex ante a program is well designed in the sense that all the attributes are matched in the blueprint. However, some of the attributes may not suit the local conditions ex post and adjusting these at tributes may lead to mismatches with the attributes of other tasks, which will then require further adjustments e use this framework to analyze the transition where complementary reforms must be implemented. Take a simple example with two reforms: enter- rise restructuring(laying off excess workers)and creation of a social safety net he attributes of enterprise restructuring are the number and individual charac- teristics of the laid off workers, such as age, seniority, family composition, length of residence, sex, type of contract, current wage, history of employment, etc. The Maskin et al. (1997) analyze incentive issues in M-form and U-form organizations.Europe. Why do we observe such di!erences? It is often claimed that the former Soviet system was too rigid while the Chinese system was more #exible. But why are some institutions more #exible than others and how does this relate to di!erences in reform strategies? In this paper, we draw on our recent work in organization theory (Qian et al., 1997) to shed light on these questions. The two former centrally planned economies of the Soviet Union and China were organized di!erently (Qian and Xu, 1993). The Soviet economy was organized in specialized or functional ministries (e.g., mining, machinery, textile, etc.), each controlling gigantic factories. This is known as &branch organization' (Nove, 1980). In contrast, the Chinese economy has been organized since 1958 mainly on a geographical principle, known as &regional organization' (Granick, 1990). The Soviet organization resembled closely the U-form organization of business "rms while the Chinese organization resembled that of the M-form organization (Chandler, 1962; Williamson, 1975). This paper focuses on the comparison of M-form and U-form organizations in coordinating changes in a team-theoretic framework.1 Using Milgrom and Roberts' (1992) concept of &design attributes', we analyze coordination as &at￾tribute matching'. In the context of business organizations, any product or service can be viewed as the result of the assembling of complementary parts: assembling of the parts of a car or of a computer; synchronizing travel, accom￾modation and logistics for a conference or a business meeting; assembling subroutines for a software packages; etc. Each part is characterized by its attributes: time, location, technical speci"cations such as size, weight and bits, etc. These complementary parts must be made to "t together. A product or a service is completed successfully only if the characteristics of each attribute of the various parts are matched successfully. For instance, the diameter of a screw must match that of a bolt; they must both meet certain standards of material resistance. They must be transported to a given location at a given time in order to be matched. Failure in the matching of attributes implies most often a drastic production failure. We assume that ex ante a program is well designed in the sense that all the attributes are matched in the blueprint. However, some of the attributes may not suit the local conditions ex post and adjusting these at￾tributes may lead to mismatches with the attributes of other tasks, which will then require further adjustments. We use this framework to analyze the transition where complementary reforms must be implemented. Take a simple example with two reforms: enter￾prise restructuring (laying o! excess workers) and creation of a social safety net. The attributes of enterprise restructuring are the number and individual charac￾teristics of the laid o! workers, such as age, seniority, family composition, length of residence, sex, type of contract, current wage, history of employment, etc. The 1Maskin et al. (1997) analyze incentive issues in M-form and U-form organizations. 1086 Y. Qian et al. / European Economic Review 43 (1999) 1085}1094