Defense Industry Investment Diversification And Military And Civilian Information Asymmetry

In 2005,"some views of the State Council on the encouragement and guide of the individual, private and other non-public economic development "was promulgated by the state, which encourages private capital to enter the defense industry. It begins the reform of the diversification of the defense industry main investors, which received widespread attention in business circles. Although the defense industry is opening to the private capital, but it is not easy for the private capital to enter under the condition that policy supports and enterprise has essential factors. This paper will base on the theory of information asymmetries to analyze the information asymmetries problem when the private capital will invest the defense industry.Firstly, this paper elaborates the foundation and significance of the study, and reviews the current research situation domestic and abroad, and then puts forward the problem to solve and the main content. Second, the paper studies the current status of China's defense industry, the problems interrelated and the special nature of the defense industry. It also analyzes the feasibility of diversification in the defense industry. And then the paper summarizes the approaches of the feasibility of diversification in the defense industry. Secondly, the paper analyzes the reasons and representation of the information asymmetries, and the bad effect for the private capital to enter the defense industry. Lastly, the paper discusses how to eliminate obstacles of the information asymmetries, and how to accelerate private capital enter the defense industry from information advantage and information inferior of the private capital. It also uses signal transfer model, trust and substitute model to analyze adverse selection and moral hazard under the condition that the private capital has information advantage. And then comes to a solution, and simply put forward a proposal to exit barrier to defense industry and the exchange of information asymmetry for private enterprises as unformed player.