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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

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.

Suggested Citation

  • Yue Ma & Shu Kam Lee & Hing Lin Chan, 2003. "Estimating Firm Behavior under Rationing: a Panel Data Study of the Chinese Manufacturing Industry," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 1(2), pages 221-244.
    • Handle: RePEc:taf:jocebs:v:1:y:2003:i:2:p:221-244
    DOI: 10.1080/1476528032000066703D
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    2. 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.

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