BARRIERS TO EFFICIENCY AND THE PRIVATIZATION OF TOWNSHIP-VILLAGE ENTERPRISES

the revenue constraint for enterprise k can be represented by:

^p1^yk ⁺ ∙ ∙ ∙ ^{+ p}M^yM ≥ RC^,

while the employment constraint for enterprise k can be represented by:

xv₁ ≥ N^k

where we let input x_v1 denote labor.

To get the loss in profits from the expenditure, revenue (output), and employment con-
straints, we calculate profits with the constraints (5) — (7). The superscript k will be dropped
because the variable inputs x_v and the outputs y are choice variables. In practice, E^k , R_c^k ,
and N^k are computed as observed expenditures on variable inputs, output revenues, and
IM

employed workers, i.e.,    w_vi x_v^k_i is used as a proxy for E^k ,    p_my_m^k is used as a proxy for

i=1                                   m=1

R_c^k and x_v^k₁ is used as a proxy for N^k .

Given output and input prices, the fixed factor endowment x_f^k , and technology (4), the
unrestricted short-run profit maximization problem for the k^th enterprise can be calculated
as the solution to the following linear programming problem:

≥ ym,    m=1, ..., M

≤ x_vi ,i= 1, ..., I

≤ x^k ,i= I +1, ..., N
fi

=1,z∈ R₊^K

k=1

where the four constraints in (LP.1) represent the technology with I variable inputs, N - I

fixed inputs and M outputs. The expenditure, revenue, and employment constraints are
represented by expressions (5) — (7) respectively.

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