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

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  • Lawrence J. Lau
  • Yingyi Qian
  • Gerard Roland

Abstract

This paper develops a simple model to analyze the "dual-track" approach to market liberalization 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 roles of enforcement of the plan for achieving Pareto improvement and full liberalization of the market track for achieving efficiency. We examine how the dual-track approach has worked in product and labor market liberalization in China.

Suggested Citation

  • Lawrence J. Lau & Yingyi Qian & Gerard Roland, "undated". "Reform without Losers: An Interpretation of China's Dual-Track Approach to Transition," Working Papers 99010, Stanford University, Department of Economics.
    • Handle: RePEc:wop:stanec:99010
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    References listed on IDEAS

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    More about this item

    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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