The Effects of Reforming the Chinese Dual-Track Price System

coexisted in China.² A stylized model of the Chinese economy, with DTP applied
to agricultural products, is formulated by Bennett and Dixon (1996). In their
model, if the government holds down the dual-track price, i.e., if it restricts the
price at which coupons can be used to buy the plan-track quantity of agricultural
goods, general economic performance is harmed. The income effect of the lower
coupon price results in an increase in nominal demand by households, causing
the market price of food to rise. The money wage therefore adjusts upward in
free market industries, so that both the quantity of exports and output across the
economy fall. Lau et al. (1997, 2000) examine the effects of shifting from central
planning to DTP, in the first of these papers at the general equilibrium level and
in the second in greater detail for a single good. They show that the introduction
of a market track, alongside a plan track in which prices and quantities are fixed,
yields a Pareto gain.³ Liu and Song (2003) consider the properties of the household
demand function under DTP and make a comparison with the standard household
demand model. They then aggregate demand functions for a good and focus on
how market price elasticity with DTP differs from that in a free market, but they
do not consider the effect of variation of dual track parameters on this market
price.

² On the dual track programme overall (not just prices) in the Chinese industrial sector, see
Wu and Zhao (1987).

³A recent paper by Che and Facchini (2007) shows that when the plan-track is not fully
enforced introduction of DTP may be detrimental to some agents.

<<   1   2   3   4   5   6   7   >>

More intriguing information