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How Reform Worked in ChinaThe Transition from Plan to Market$
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Yingyi Qian

Print publication date: 2017

Print ISBN-13: 9780262534246

Published to MIT Press Scholarship Online: May 2018

DOI: 10.7551/mitpress/9780262534246.001.0001

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

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

Chapter:
(p.63) 2 Reform without Losers: An Interpretation of China’s Dual-Track Approach to Transition
Source:
How Reform Worked in China
Author(s):

Yingyi Qian

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262534246.003.0003

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.

Keywords:   Dual-track approach, Pareto improvement, Efficiency, Market liberalization, Labor market

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