The Effects of Reforming the Chinese Dual-Track Price System

John Bennett (), Huw Dixon and Helen X.Y. Hu ()

CEDI Discussion Paper Series from Centre for Economic Development and Institutions(CEDI), Brunel University

Abstract: We formulate a microeconomic model of the dual-track price system for Households and use it to analyze 'transitional policy' reforms, which we characterize as a rise in plan-track price and a reduction in the plan-track quantity. Each of these reforms has a negative effect on market price, but a positive effect on the weighted average price (CPI). When households are homogeneous, transitional policy reform reduces welfare (if profits are not fully distributed). Under fairly mild assumptions, if households are heterogeneous and resale of goods can occur, transitional policy reform creates losers (state employees) as well as winners (non-state employees).

Pages: 36 pages
Date: 2008-07
New Economics Papers: this item is included in nep-cna, nep-com, nep-mac and nep-tra
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