BARRIERS TO EFFICIENCY AND THE PRIVATIZATION OF TOWNSHIP-VILLAGE ENTERPRISES



the revenue constraint for enterprise k can be represented by:

p1yk + ∙ ∙ ∙ + pMyM RC,

(6)


(7)


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

xv1 Nk

where we let input xv1 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, Ek , Rck ,
and N
k are computed as observed expenditures on variable inputs, output revenues, and
IM

employed workers, i.e.,    wvi xvki is used as a proxy for Ek ,    pmymk is used as a proxy for

i=1                                   m=1

Rck and xvk1 is used as a proxy for Nk .

Given output and input prices, the fixed factor endowment xfk , 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:

πuk


=max
ym ,xvi ,z


pmym

m=1


wvixvi
i=1


(8)


K

s.t.     zkymk

k=1

K

zkxvki

k=1

K

zkxfki

k=1


zk


ym,    m=1, ..., M

xvi ,i= 1, ..., I

xk ,i= I +1, ..., N
fi

=1,zR+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.

12



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