Frontiers of Economics in China

ISSN 1673-3444

ISSN 1673-3568(Online)

CN 11-5744/F

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A Characterization for Dominant Strategy Implementation
Jesse A. Schwartz, Quan Wen
Front Econ Chin. 2013, 8 (1): 1-18.  
https://doi.org/10.3868/s060-002-013-0001-3

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We introduce a perfect price discriminating mechanism for allocation problems with private information. A perfect price discriminating mechanism treats a seller, for example, as a perfect price discriminating monopolist who faces a price schedule that does not depend on her report. In any perfect price discriminating mechanism, every player has a dominant strategy to truthfully report her private information.We establish a characterization for dominant strategy implementation: Any outcome that can be dominant strategy implemented can also be dominant strategy implemented using a perfect price discriminating mechanism. We apply this characterization to derive the optimal, budget-balanced, dominant strategy mechanisms for public good provision and bilateral bargaining.

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Cross-Country Externalities of Trade and FDI Liberalization
Qing Liu, Larry D. Qiu
Front Econ Chin. 2013, 8 (1): 19-49.  
https://doi.org/10.3868/s060-002-013-0002-0

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We develop a three-country heterogeneous-firm model and show that FDI liberalization in one foreign country (F1) results in the following: (i) some firms from the home country switch from export to FDI in F1; (ii) skilled labor’s wage rate drops in the home country; (iii) wage inequality between the skilled and unskilled labor decreases; and (iv) some firms from the home country switch from FDI to export to another foreign country (F2). The effects from trade liberalization are just the opposite, but the effects from education improvement are qualitatively the same as FDI liberalization. The cross-country externalities work through the domestic labor market.

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An Equilibrium Approach to the Aggregation of Beliefs
Yi Jin, Jianbo Zhang
Front Econ Chin. 2013, 8 (1): 50-63.  
https://doi.org/10.3868/s060-002-013-0003-7

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This paper presents a new answer to the old question of how to aggregate individual beliefs. We construct a model which allows agents to take arbitrage opportunities against the aggregated belief by making contingent claims against the states, and the aggregator (market maker) regulates the probability of states. When all claims from the agents are mutually covered for every realization of the state, an aggregation of individual beliefs is thus obtained. We prove the existence and uniqueness of the equilibrium aggregation, and also show that the aggregate belief lies in the convex hull of individual beliefs. This model allows us to address some important problems such as how individual agent’s attitude toward risk and wealth endowment affect the outcome of the aggregation process, and whether the aggregate belief satisfies the well-known properties like equal treatment.

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A Case Against Zero Capital-Income Taxation
Darong Dai, Kunrong Shen, Ruihua Ma
Front Econ Chin. 2013, 8 (1): 64-90.  
https://doi.org/10.3868/s060-002-013-0004-4

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This paper develops a dynamic general equilibrium model to investigate the optimal level of capital income taxation in light of stochastic endogenous economic growth. Although endogenous human capital is incorporated into our model, we restrict our investigation to the issue of optimal physical capital income tax; and the labor supply is also endogenously determined. This paper proves that the optimal capital income tax should be zero provided exogenous government expenditure on production; however, capital income should be taxed if we consider endogenous government consumption.

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Consumption Inequality in China: Theory and Evidence from the China Health and Nutrition Survey
Kunyuan Qiao
Front Econ Chin. 2013, 8 (1): 91-112.  
https://doi.org/10.3868/s060-002-013-0005-1

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We investigate consumption inequality in China both theoretically by constructing a theoretical model that delineates the transmission channels by which income shocks affect consumption and empirically through an Unequally Spaced Dynamic Panel Data model estimation. We find that China is experiencing consumption inequality with the full partial insurance of consumption against both permanent and transitory income shocks, although the impact of both types of shock are larger than the case of the United States. The results are due to precautionary savings motives of the Chinese. We further document how income becomes more dispersed in China and show how the family background of a child affects his outcome to a large extent. Policy implications based on our findings are proposed.

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Do National Standards Impact Foreign Trade? Evidence from China’s Foreign Trade and Sino-US Bilateral Trade
Lijuan Yang
Front Econ Chin. 2013, 8 (1): 113-145.  
https://doi.org/10.3868/s060-002-013-0006-8

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This paper investigates the impact of standards on China’s trade volume with the rest of the world and its bilateral trade flows with the US, from panel data covering 33 ICS classified technology sectors between 1990–2010. Results show that China’s country specific voluntary standards promote China’s foreign trade and the impact on exports is larger than on imports. China’s internationally harmonized voluntary standards have the strongest positive impact, especially on imports. China’s country specific mandatory standards increase imports while decreasing exports. China’s internationally harmonized mandatory standards are favorable for China’s foreign trade development. China’s country specific voluntary standards and internationally harmonized standards contribute to promoting China’s trade surplus with the US.

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Technical Efficiency in the Chinese Textile Industry
Yingxin Wu, Xianbo Zhou
Front Econ Chin. 2013, 8 (1): 146-163.  
https://doi.org/10.3868/s060-002-013-0007-5

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This paper presents a measurement of the technical efficiency of textile industries with 4-digit codes in China by using the cross-section data from 2002 and 2007 and a fully nonparametric stochastic frontier estimation approach. The technical efficiency of these textile industries is compared across six economic ownership types and across seven regions in China. This uncovers the effects of the proprietary characteristics and the location of a firm on its technical efficiency performance. The nonparametric estimation provides some interesting findings. First, textile production in China performs with a decreasing return to scale. The difference between the output elasticity of labor and that of capital decreases from the year 2002 to 2007. Second, the technical efficiency of the 4-digit textile industry in China is significantly contingent on its ownership and location. Privately-run textile enterprises on average perform with the highest level of technical efficiency among the six ownership types while state-owned enterprises perform with the lowest level of technical efficiency, whether or not the location dummies are accounted for. Third, the technical efficiency evaluated by regions follows the order: “eastern area > southern area > central area > northern area,” which remains unchanged across the two years.

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