November 1997 <p> This paper has been revised as Stanford Economics Working Paper 99-010.

October 1997, (Forthcoming, American Economic Review) <p> The government's incentives to bail out inefficient projects are determined by the tradeoff between political benefits and economic costs, the latter depending on the decentralization of government. Two effects of federalism are derived:...</p>

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...

Pareto-improving economic reforms that also simultaneously achieve efficiency can be implemented through a strategy of "dual-track" liberalization. Its success requires the feasibility of the original plan and its continued enforcement by the state. The Chinese experience demonstrates that such...