IDEAS home Printed from https://ideas.repec.org/p/wdi/papers/2001-398.html
   My bibliography  Save this paper

Accessible Pareto-Improvements: Using Market Information to Reform Inefficiencies

Author

Listed:
  • Michael Mandler

Abstract

We study Pareto improvements whose implementation requires knowledge of only market prices and traded quantities, not utility and demand functions. Quantity stabilizations (for example, the Lau, Qian, and Roland model of dual-track reform) give agents the right to repeat their earlier trades and hence require policymakers to know the quantities agents previously exchanged. While reasonable in some partial equilibrium contexts, such knowledge is implausible in general equilibrium. To diminish informational requirements further, we also consider price stabilizations, which hold constant the relative prices that consumers face. Although price stabilizations do not achieve first-best efficiency, they lead to Pareto-improvements and production efficiency. Moreover, the production efficiency advantage persists under price stabilization but not under quantity stabilization when some firms are not profit-maximizes; this difference can be critical in transition policies for planned economies. In addition to planning, we consider several other applications of quantity and price stabilization, both partial equilibrium and general equilibrium: removal of rent controls, deregulation of a cross-subsidizing public utility, and the entry of an autarkic economy into world trade. Not surprisingly, the most plausible candidates for quantity or price stabilization occur in partial equilibrium settings. Finally, we discuss some difficulties specific to general equilibrium models of transition economies. When the state completely rations trades under planning, it will usually need to operate at a deficit. Under reform, the state must raise revenue to close this deficit, and that will frequently prevent quantity stabilizations from achieving a Pareto improvement. But ex ante deficits do no pose a problem for price stabilization reform strategies.

Suggested Citation

  • Michael Mandler, 2001. "Accessible Pareto-Improvements: Using Market Information to Reform Inefficiencies," William Davidson Institute Working Papers Series 398, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2001-398
    as

    Download full text from publisher

    File URL: http://deepblue.lib.umich.edu/bitstream/2027.42/39782/3/wp398.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Mandler, Michael, 1999. "Simple Pareto-Improving Policies," Journal of Economic Theory, Elsevier, vol. 84(1), pages 120-133, January.
    2. Chichilnisky,Graciela (ed.), 1999. "Markets, Information and Uncertainty," Cambridge Books, Cambridge University Press, number 9780521553551, October.
    3. Grandmont, J. M. & McFadden, D., 1972. "A technical note on classical gains from trade," Journal of International Economics, Elsevier, vol. 2(2), pages 109-125, May.
    4. Lawrence J. Lau & Yingyi Qian & Gerard Roland, 2000. "Reform without Losers: An Interpretation of China's Dual-Track Approach to Transition," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 120-143, February.
    5. Lau, Lawrence J. & Qian, Yingyi & Roland, Gerard, 1997. "Pareto-improving economic reforms through dual-track liberalization," Economics Letters, Elsevier, vol. 55(2), pages 285-292, August.
    6. Edward L. Glaeser & Andrei Shleifer, 2001. "A Case for Quantity Regulation," Harvard Institute of Economic Research Working Papers 1909, Harvard - Institute of Economic Research.
    7. CORDELLA, Tito & MINELLI, Enrico & POLEMARCHAKIS, Heracles, 1993. "Trade and Welfare," LIDAM Discussion Papers CORE 1993033, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
      • CORDELLA, Tito & MINELLI, Enrico & POLEMARCHAKIS, Heracles, 1999. "Trade and welfare," LIDAM Reprints CORE 1379, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    8. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Murray C. Kemp & Koji Shimomura, 2002. "Recent Challenges to the Classical Gains–from–Trade Proposition," German Economic Review, Verein für Socialpolitik, vol. 3(4), pages 485-489, November.
    2. Che, Jiahua & Facchini, Giovanni, 2004. "Dual Track Liberalization: With and Without Losers," Working Papers 04-0100, University of Illinois at Urbana-Champaign, College of Business.
    3. Lu Ming & Zhao Chen & Yongqin Wang & Yan Zhang & Yuan Zhang & Changyuan Luo, 2013. "China’s Economic Development," Books, Edward Elgar Publishing, number 14502.
    4. Che, Jiahua & Facchini, Giovanni, 2007. "Dual track reforms: With and without losers," Journal of Public Economics, Elsevier, vol. 91(11-12), pages 2291-2306, December.
    5. Ma, Yuanyuan & Walsh, Patrick Paul, 2013. "Party Membership and State Jobs in Urban China," IZA Discussion Papers 7643, Institute of Labor Economics (IZA).
    6. Tran, Hien Thu & Santarelli, Enrico, 2018. "Successful Transition to a Market Economy in Vietnam: An Interpretation from Organizational Ecology Theory," GLO Discussion Paper Series 181, Global Labor Organization (GLO).
    7. Earl Grinols & Peri Silva, 2011. "Rules of origin and gains from trade," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 47(1), pages 159-173, May.
    8. C. A. Claussen, 2002. "On the Dynamic Consistency of Reform and Compensation Schemes," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 5(3), pages 133-144.
    9. Roland, Gerard & Verdier, Thierry, 2003. "Law enforcement and transition," European Economic Review, Elsevier, vol. 47(4), pages 669-685, August.
    10. John Bennett & Huw Dixon & Helen X.Y. Hu, 2008. "The Effects of Reforming the Chinese Dual-Track Price System," CEDI Discussion Paper Series 08-14, Centre for Economic Development and Institutions(CEDI), Brunel University.
    11. Bennett, John & Dixon, Huw & Hu, Helen X.Y., 2013. "The transition from dual-track pricing to a market system: Winners and losers," Economic Systems, Elsevier, vol. 37(1), pages 30-44.
    12. SHEA, Esther Y.P., 2010. "Understanding China's grain procurement policy from a perspective of optimization," China Economic Review, Elsevier, vol. 21(4), pages 639-649, December.
    13. Wei Li, 2000. "Corruption and Resource Allocation Under China's Dual Track System," Econometric Society World Congress 2000 Contributed Papers 0179, Econometric Society.
    14. Brousseau, Eric & Garrouste, Pierre & Raynaud, Emmanuel, 2011. "Institutional changes: Alternative theories and consequences for institutional design," Journal of Economic Behavior & Organization, Elsevier, vol. 79(1-2), pages 3-19, June.
    15. Fardmanesh, Mohsen & Tan, Li, 2003. "Wage and price control policies in transition economies," Journal of Development Economics, Elsevier, vol. 70(1), pages 173-200, February.
    16. Joseph, Kelli L., 2010. "The politics of power: Electricity reform in India," Energy Policy, Elsevier, vol. 38(1), pages 503-511, January.
    17. Acharya Sanjaya & Signorelli Marcello & Vojinovic Borut & Oplotnik Žan Jan, 2013. "Alternative Approach to Economic Restructuring to Benefit the Poor – Sam Multipliers Analysis as Alternative Approach," Scientific Annals of Economics and Business, Sciendo, vol. 60(1), pages 182-201, July.
    18. Gerard Rpland, 2001. "The Political Economy of Transition," William Davidson Institute Working Papers Series 413, William Davidson Institute at the University of Michigan.
    19. Guy Shaojia Liu & Haiyan Song, 2003. "A Dual-Price Demand Theory for Economies under Transition," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 1(2), pages 185-203.
    20. Tim Besley & Rohini Pande, 1998. "Read my lips: the political economy of information transmission," IFS Working Papers W98/13, Institute for Fiscal Studies.

    More about this item

    Keywords

    Pareto improvements; transition policy; dual-track reforms; international trade; rent control; deregulation;
    All these keywords.

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • P30 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - General
    • F10 - International Economics - - Trade - - - General
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wdi:papers:2001-398. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: WDI (email available below). General contact details of provider: https://edirc.repec.org/data/wdumius.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.