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

  • Yue Ma
  • Shu Kam Lee
  • Hing Lin Chan
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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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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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  1. 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.
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  12. 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.
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