Membership Rules and the Pricing of Local Public Goods: Evidence from China’s Hukou System

This paper studies China’s Hukou system as an institutional membership rule that prices access to local public goods. When eligibility hinges on residency status, services like schooling, healthcare, and housing support become effectively club-like: insiders face lower user prices and smoother access, while outsiders face rationing, higher effective costs, and queue disadvantages at enforcement gateways.

We develop a parsimonious model that aggregates private consumption with publicly provided inputs whose effective user price depends on membership. The model yields three testable implications: (i) residency value and social endowment raise utilization and satisfaction in membership-linked domains; (ii) residency value substitutes for wages along indifference curves, generating a wage–residency trade-off; and (iii) sector technology magnifies the payoff to membership where access is rationed.

Summary and Contribution:

We provide a unified conceptual and empirical analysis of residency-based pricing. Conceptually, we formalize Hukou as a membership institution that maps status into user prices and queuing priority at gateways. Empirically, we design and field an original micro survey in Beijing, Shanghai, and Guangzhou (1,565 respondents) that records out-of-pocket expenditures, subsidies/reimbursements, domain-specific satisfaction, and parental background measures used to proxy social endowment.

A key feature of the setting is that it strips away many cross-border confounds—shared language, citizenship, and unified legal and fiscal systems—allowing a cleaner quantification of how membership rules reshape behavior and welfare.

Evidence:

The evidence aligns with the membership-pricing mechanism. Insiders spend more and report higher satisfaction in congestible services; medical reimbursements respond to status while education transfers are comparatively flat, consistent with heterogeneous verification and rationing. We also document a wage–residency trade-off among migrants and show that high-technology employment raises income and job satisfaction for migrants, but not for locals—consistent with complementarity between sector technology and membership value.

Availability:

The manuscript is not hosted on this website due to copyright considerations.