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Dual Track Liberalization: With and Without Losers

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  • Jiahua Che

    ()

  • Giovanni Facchini

    ()

Abstract

Dual track liberalization, relying upon the continued enforcement of existing contracts and the simultaneous creation of a free market sector, represents a powerful mechanism in economic reform. If not anticipated, the reform implements an outcome that is both Pareto improving and e±ciency enhancing as compared to the status quo. We show that when the reform is anticipated, intertemporal arbitrage arises potentially undermining these properties. Only when the original policy involves both price setting and quantity restrictions can anticipated dual track liberalization maintain its attractiveness. These conditions correspond well to the circumstances faced by transition economies.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 2004-661.

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Length: 31 pages
Date of creation: 01 Feb 2004
Date of revision:
Handle: RePEc:wdi:papers:2004-661

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Keywords: Dual Track Liberalization; Intertemporal Arbitrage; Pareto Improving Reforms; China;

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  1. Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, American Economic Association, vol. 81(5), pages 1170-88, December.
  2. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, American Economic Association, vol. 81(5), pages 1146-55, December.
  3. Dewatripont, M & Roland, G, 1992. "The Virtues of Gradualism and Legitimacy in the Transition to a Market Economy," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 102(411), pages 291-300, March.
  4. Lau, Lawrence J. & Qian, Yingyi & Roland, Gerard, 1997. "Pareto-improving economic reforms through dual-track liberalization," Economics Letters, Elsevier, Elsevier, vol. 55(2), pages 285-292, August.
  5. Mathias Dewatripont & Gérard Roland, 1995. "The design of reform packages under uncertainty," ULB Institutional Repository 2013/9607, ULB -- Universite Libre de Bruxelles.
  6. Hammond, Peter J, 1979. "Straightforward Individual Incentive Compatibility in Large Economies," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 46(2), pages 263-82, April.
  7. Dewatripont, M & Roland, G, 1992. "Economic Reform and Dynamic Political Constraints," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 59(4), pages 703-30, October.
  8. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1992. "The Transition to a Market Economy: Pitfalls of Partial Reform," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(3), pages 889-906, August.
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Cited by:
  1. Jiahua Che & Giovanni Facchini, 2007. "Dual Track Reforms: With and Without Losers," Economics Discussion Papers, University of Essex, Department of Economics 646, University of Essex, Department of Economics.
  2. John Bennett & Huw Dixon & Helen X.Y. Hu, 2008. "The Effects of Reforming the Chinese Dual-Track Price System," CEDI Discussion Paper Series, Centre for Economic Development and Institutions(CEDI), Brunel University 08-14, Centre for Economic Development and Institutions(CEDI), Brunel University.

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