Economic transitions in countries that move from state planning and redistribution to market exchange create business opportunities but also uncertainty, because many interdependent factors-modes of exchange, types of products, and forms of organizations-are in flux. Uncertainty is even greater when the country's political institutions remain authoritarian because the rule of law is weak and state bureaucrats retain power over the economy. This study of listed firms in China, which has recently seen economic transition but persistent authoritarianism, shows that in such contexts, firms can reduce uncertainty by developing relationships with state bureaucrats, which help firms learn how state bureaucracies operate and engender trust between firms and bureaucrats. Together, knowledge and trust stabilize operations and help persuade bureaucrats to lighten regulatory burdens, grant firms access to statecontrolled resources, and improve government oversight. Our results show that as economic transitions proceed and uncertainty increases, business-state ties increasingly improve firm performance. We also investigate two likely contingencies, industry and firm size, and two important causal mechanisms, access to bank loans and protection from related-party loans, and show that the value of business-state relations varies over time, depending on the trajectory of both economic and political institutions.

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We are grateful for comments and suggestions from Jesse Shapiro and six anonymous referees.We would also like to thank Hardy provide very able RA work. ABSTRACTWe study favoritism via hometown ties, a common source of favor exchange in China, in fellow selection of the Chinese Academies of Sciences and Engineering. Hometown ties to fellow selection committee members increase candidates' election probability by 39 percent, coming entirely from the selection stage involving an in-person meeting. Elected hometown-connected candidates are half as likely to have a high-impact publication as elected fellows without connections. CAS/CAE membership increases the probability of university leadership appointments and is associated with a US$9.5 million increase in annual funding for fellows' institutions, indicating that hometown favoritism has potentially large effects on resource allocation.

We study how sharing a hometown or college connection with an incumbent member of China’s Politburo affects a candidate’s likelihood of selection as a new member. In specifications that include fixed effects to absorb quality differences across cities and colleges, we find that hometown and college connections are each associated with 5–9 percentage point reductions in selection probability. This “connections penalty” is equally strong for retiring Politburo members, arguing against quota-based explanations, and it is much stronger for junior Politburo members, consistent with a role for intra-factional competition. Our findings differ from earlier work because of our emphasis on within-group variation, and our focus on shared hometown and college, rather than shared workplace, connections. (JEL D72, O17, P26, Z13)