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Reform Without Losers: An Interpretation of China's Dual-Track Approach to Transition

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  • Lau, Lawrence J
  • Qian, Yingyi
  • Roland, Gérard

Abstract

We develop a simple model to analyse the ‘dual-track’ approach to transition to a market economy as a mechanism for implementing efficient Pareto-improving economic reform, that is, reform achieving efficiency without creating losers. The approach, based on the continued enforcement of the existing plan while simultaneously liberalizing the market, can be understood as a method for making implicit lump-sum transfers to compensate potential losers of the reform. The model highlights the critical role of enforcement of the plan and full liberalization of the market track. We examine how the dual-track approach has worked in product and labour markets in China’s economic reform in practice.

Suggested Citation

  • Lau, Lawrence J & Qian, Yingyi & Roland, Gérard, 1998. "Reform Without Losers: An Interpretation of China's Dual-Track Approach to Transition," CEPR Discussion Papers 1798, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1798
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    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General
    • P21 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Planning, Coordination, and Reform
    • P22 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Prices
    • P41 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Planning, Coordination, and Reform

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