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Estimating Firm Behavior under Rationing: a Panel Data Study of the Chinese Manufacturing Industry

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  • Yue Ma
  • Shu Kam Lee
  • Hing Lin Chan
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Abstract

The purpose of this paper is to investigate the impacts of rationing on firm behavior. A virtual price approach is adopted to derive the rationed elasticities of variable input demands and output supply under a translog profit function. To illustrate the difference between the rationed and unrationed elasticities, we conduct an analysis using a firm-level annual survey data of China over the period 1985-88. Our estimation results indicate that the values of most elasticities would have been affected significantly if the government had imposed rationing on material inputs. The behavior of Chinese firms would have been seriously distorted in a complicated way. The firms would have over-responded to market signals in making some of their input or output decisions and, at the same time, might have under-reacted, or would have not changed their reaction, in making the other input or output decisions, under a rationing regime.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Journal of Chinese Economic and Business Studies.

Volume (Year): 1 (2003)
Issue (Month): 2 ()
Pages: 221-244

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Handle: RePEc:taf:jocebs:v:1:y:2003:i:2:p:221-244

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Related research

Keywords: Rationing; Virtual Prices; Translog; Panel Data; China;

References

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  1. Hsiao,Cheng, 2003. "Analysis of Panel Data," Cambridge Books, Cambridge University Press, number 9780521818551, April.
  2. Neary, J. P. & Roberts, K. W. S., 1980. "The theory of household behaviour under rationing," European Economic Review, Elsevier, vol. 13(1), pages 25-42, January.
  3. Chao Yang Peng, 1996. "Challenges to China's Energy Security," Chinese Economies Research Centre (CERC) Working Papers 1996-08, University of Adelaide, Chinese Economies Research Centre.
  4. repec:wop:cercwp:96_8 is not listed on IDEAS
  5. Johnson, Todd M, 1995. "Development of China's Energy Sector: Reform, Efficiency, and Environmental Impacts," Oxford Review of Economic Policy, Oxford University Press, vol. 11(4), pages 118-32, Winter.
  6. Berndt, Ernst R & Wood, David O, 1975. "Technology, Prices, and the Derived Demand for Energy," The Review of Economics and Statistics, MIT Press, vol. 57(3), pages 259-68, August.
  7. Lau, Lawrence J., 1976. "A characterization of the normalized restricted profit function," Journal of Economic Theory, Elsevier, vol. 12(1), pages 131-163, February.
  8. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Chamberlain, Gary, 1982. "Multivariate regression models for panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 5-46, January.
  10. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier.
  11. Kulatilaka, Nalin, 1985. "Tests on the validity of static equilibrium models," Journal of Econometrics, Elsevier, vol. 28(2), pages 253-268, May.
  12. Squires, Dale, 1994. "Firm behavior under input rationing," Journal of Econometrics, Elsevier, vol. 61(2), pages 235-257, April.
  13. Sakai, Yasuhiro, 1974. "Substitution and expansion effects in production theory: The case of joint production," Journal of Economic Theory, Elsevier, vol. 9(3), pages 255-274, November.
  14. Fulginiti, Lilyan & Perrin, Richard, 1993. "The Theory and Measurement of Producer Response under Quotas," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 97-106, February.
  15. Sinton, Jonathan E., 2001. "Accuracy and reliability of China's energy statistics," China Economic Review, Elsevier, vol. 12(4), pages 373-383.
  16. Jacques Mairesse & Zvi Griliches, 1988. "Heterogeneity in Panel Data: Are There Stable Production Functions?," NBER Working Papers 2619, National Bureau of Economic Research, Inc.
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Cited by:
  1. Zhijun Zhao & Yue Ma & Yuhui Liu, 2005. "Equity Valuation in Mainland China and Hong Kong: The Chinese A-H Share Premium," Working Papers 142005, Hong Kong Institute for Monetary Research.
  2. Sun, Huayu & Ma, Yue, 2005. "Policy strategies to deal with revaluation pressures on the renminbi," China Economic Review, Elsevier, vol. 16(2), pages 103-117.

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