8 JOURNAL OF POLITICAL ECONOMY environment facing the industrial bureaus and in the procedures they sed to select managers. In some cases, reforms broke out of the traditional mold of appointment by bureaucratic superiors. The most significant was the system of selection by competitive auctions. About 14 percent of the managers in our sample were selected by competi- tive auctions. These reforms were experimental and gained momen- tum in the late 1980s. Two years alone, 1987 and 1988, accounted for over half (57. 4 percent) of the competitive auctions in the decade, although for only 23 percent of all managerial changes The use of competitive auctions for selecting managers is quite revealing of the extent to which market ideas have penetrated the Chinese state-owned enterprise system. After all, an auction is an extreme market method for allocating resources. Auctions funda mentally are devices for revealing information; an auction is used when there is much uncertainty about the value of the item being exchange il tract, or a shipment of eggplant (McAfee and McMillan 1987). China's managerial auctions serve to reveal information about both the potential managers' capabilities and the firms'inherent productivity, especially in the case in which the incumbent manager is bidding In a fully functioning managerial labor market, information about potential managers comes from long-term observation of their performance in lower management jobs. In the transition economy, starting with the leftovers of the planned economy, information on past performance is unreliable or nonexistent Auctions are an alternative source of information Auction procedures varied among regions in China, but certain common procedures can be described(Naughton 1995). Enterprises were generally put up for auction by municipal governments(which control most enterprises in China). In some cases, the industrial bu- reau acted jointly with the municipal budgetary authorities to carry out the auction In other cases, an"evaluation commission"was estab- lished with outside experts participating as well. Before the auction the firm's accounts were made available for inspection by any poter tial bidder. The most important component of the bid was a promise to turn over a specified amount of enterprise profit to municipa authorities over the following 3-5 years. Thus the auction proces esembled a competitive leasing procedure. Minimum bids were often stablished by auction commissions. However, firms were not simply auctioned to the highest bidder. Bidders submitted management 4 An alternative experimental reform involved the se by workers' ongresses in the enterprise, hanner somewhat like the yug em of worker nanagement. About 4 percent of the managers in our ed by workers ongresses. The sample is too small for statistical analysis, ar this subgroup further