BARRIERS TO EFFICIENCY AND THE PRIVATIZATION OF TOWNSHIP-VILLAGE ENTERPRISES

For each k, consider the following definitions: (i) πuk ≡ π^k x_f^k represents the solution
to (8), i.e., observation k’s solution to the profit maximization problem with no revenue,
expenditure and employment constraints; (ii) π_rk ≡ π^rk x_f^k ,R_c^k represents the solution to
(8) and the additional revenue constraint (6); (iii) πek ≡ π^ek x_f^k ,R_c^k,E^k represents the
solution (8) along with the revenue and expenditure constraints (6) and (5); and (iv) π_nk =
π^nk x_f^k ,R_c^k ,E^k ,N^k represents (8) along with the revenue, expenditure, and employment
constraints (6) — (7). Finally, denote the actual observed profits for observation k as π_ak.

The overall efficiency measure is denoted TE^k , and defined as

By definition, π_ak is always less than or equal to π_uk . Therefore TE^k will be less than or
equal to one, with TE^k =1only if the enterprise k is overall efficient. We note, without
proof, that the measures πuk , πrk , πek , and πnk are nested relationships, and hence, allow
us to decompose TE^k in into four components: actual efficiency AE^k , revenue efficiency
RE^k , financial efficiency FE^k , and employment efficiency EE^k . These measures are
defined as follows:

AEk = ^πa^k ,eek = ^πn^k ,FEk = ^πe^k and REk = ^πr^k ,
πnk         πek         πrk             πuk

and the overall efficiency can be expressed as the product of these four sources of efficiencies

TE^k = AEk * EEk * FEk * REk.

The actual efficiency could be further decomposed into technical efficiency and allocative
efficiency.

3.1 Data and Empirical Results

The project requires data on inputs, outputs, variable input prices, output prices, tax pay-
ment, expenditure and revenue for TVEs and private enterprises. Since we treat TVEs and

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