Y. Qian et al./ European Economic Review 43(1999)1085-1094 attributes of compensation from the social safety net are rules of eligibility such as length of employment, special circumstances(veteran or not), status of enterprises, rules of benefits such as size and length, types of benefits(monetary r not), technical support of computers, administration, budget, etc. If some attributes of the two tasks are not matched laid off workers may not be compensated appropriately, so they may riot In our framework, a successful reform requires both a good reform blueprint and correct implementation. Thus, there is first an uncertainty about the quality of a reform blueprint. If it is flawed it can never lead to a satisfactory result, however well coordinated the implementation is On the other hand, a good reform blueprint needs to be implemented correctly, which requires good oordination. The quality of coordination depends on the quality of the in formation available to decision-makers in the organization. We assume that only local managers are able to observe local information, and communication is necessary for others to use that information. However, communication is imperfect and there is a probability that the transmitted message is wrong. An M-form organization is an organization that is decomposed into more-or-less self-contained units where the attribute matching can be do one oca contrast, a U-form organization is decomposed into specialized units which are not self-contained, and thus attribute matching cannot be carried out locally nd is done by the top manager. Our main findings can be summarized as follows. A first basic tradeoff between the M-form and u-form is that the former allows for better local coordination but lacks economies of scale. Most importantly, the M-form enjoys an important flexibility advantage: it can experiment locally with reforms because the structure of self-contained units makes attribute matching achiev ible locally without disrupting the organization as a whole. This is not possible under the U-form due to the higher specialization of tasks. The latter result can explain why the 'big-bang approach was followed in Eastern Europe and the former Soviet Union, which had U-form economies. whereas China followed an experimental approach to reform(McMillan and Naughton, 1992; Sachs and Woo, 1997). The argument is embedded in a framework where coordination in he implementation of reforms is explicitly modeled and where different organ izational forms do not have the same degree of flexibility in coordination. Our model is consistent with the view that coordination failure is an important reason for the output collapse in the former Soviet block (Roland and verdier, 1996: Blanchard and Kremer, 1997) 2 We present the results only in a qualitative way and refer the reader to Qian et al.(1997)for a complete analysis of the results.attributes of compensation from the social safety net are rules of eligibility such as length of employment, special circumstances (veteran or not), status of enterprises, rules of bene"ts such as size and length, types of bene"ts (monetary or not), technical support of computers, administration, budget, etc. If some attributes of the two tasks are not matched, laid o! workers may not be compensated appropriately, so they may riot. In our framework, a successful reform requires both a good reform blueprint and correct implementation. Thus, there is "rst an uncertainty about the quality of a reform blueprint. If it is #awed it can never lead to a satisfactory result, however well coordinated the implementation is. On the other hand, a good reform blueprint needs to be implemented correctly, which requires good coordination. The quality of coordination depends on the quality of the in￾formation available to decision-makers in the organization. We assume that only local managers are able to observe local information, and communication is necessary for others to use that information. However, communication is imperfect and there is a probability that the transmitted message is wrong. An M-form organization is an organization that is decomposed into more-or-less self-contained units where the attribute matching can be done locally. In contrast, a U-form organization is decomposed into specialized units which are not self-contained, and thus attribute matching cannot be carried out locally and is done by the top manager. Our main "ndings can be summarized as follows.2 A "rst basic tradeo! between the M-form and U-form is that the former allows for better local coordination but lacks economies of scale. Most importantly, the M-form enjoys an important #exibility advantage: it can experiment locally with reforms because the structure of self-contained units makes attribute matching achiev￾able locally without disrupting the organization as a whole. This is not possible under the U-form due to the higher specialization of tasks. The latter result can explain why the &big-bang' approach was followed in Eastern Europe and the former Soviet Union, which had U-form economies, whereas China followed an &experimental' approach to reform (McMillan and Naughton, 1992; Sachs and Woo, 1997). The argument is embedded in a framework where coordination in the implementation of reforms is explicitly modeled and where di!erent organ￾izational forms do not have the same degree of #exibility in coordination. Our model is consistent with the view that coordination failure is an important reason for the output collapse in the former Soviet block (Roland and Verdier, 1996; Blanchard and Kremer, 1997). 2We present the results only in a qualitative way and refer the reader to Qian et al. (1997) for a complete analysis of the results. Y. Qian et al. / European Economic Review 43 (1999) 1085}1094 1087