Partial Rationing and Chinese Urban Household Food Demand Analysis

Abstract

This paper uses a mixed-demand model to analyze consumer behavior under partial rationing in which a household can purchase limited amounts of necessities, such as staple foods, from the government distribution system at subsidized prices and buy additional quantities from the private market. Theoretically the mixed-demand model does not require the suboptimal market disequilibrium assumption that strictly binding rationing models have to make. This model is also in conformity with the market clearance reality of a dual-price mixed economy. The differential Rotterdam mixed-demand system is applied to China's urban household food demand data. The mixed-demand model performs better than demand systems that ignore the rationing issue and produces a set of elasticities that the strict rationing model can not produce.