The performances of the gradual and big bang reforms are evaluated in
the long run as well as the short run. We view the residual plan under
the gradual reform as an institution that restrains state firms' mark
et power. In the short run, where competition from private business is
nonexistent or inconsequential, this institution increases output and
enhances social welfare, while the big bang reform, with state firms'
monopoly power unchecked, may lead to a reduction in output and hurt
consumers. In the long run, where the economy becomes more competitive
, the plan quota as a restraint on market power becomes redundant and
inefficient. It shifts production from the private firms to the less e
fficient state firms, causing welfare losses.