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evenue (MR) minus the marginal cost (MC)) obtained by reforming thehukou system. The balance between marginal costs and revenue determineswhat kind of measures can be launched and how much effort is put intocarrying them out. Usually, further enforcement of reform measures leadsthe marginal cost of reform to rise as opposition from vested interestsincreases, and the marginal revenue to fall as people who initially benefitedfrom reform withdraw their support as the benefits decrease. Effort is likelyto stop at the equilibrium point where the MC and MR curves intersect(Point E 0, Figure 1). Different markets will reach equilibrium at differentpoints, but comparing the timing of reform across different areas, we seethat the more developed the market is, the higher the marginal revenueand the lower the marginal cost will be. In other words, more developedmarkets need, and are able, to pursue deeper reforms.Figure 1. Costs and Benefits of Hukou System ReformMC/MRMC 0MC 1MR 1MR 0E 0 E 1 Reform Effort248The primary motivation for urban development is usually the reductionin costs made possible by economies of scale. But planned and marketeconomies have two distinct development models. Cities with marketsystems develop by self-financing: They can reduce transaction costs byaggregation and expand through efficient investment. Cities with plannedeconomies, on the other hand, tend to develop by redistribution. As a result,cities at different stages of market development have different motivationsand intentions in pursuing reform and different ways of going about it.They also see different results. Naturally, cities with redistributive policiesin place tend to resist reform and restrict migration, while those cities thatincreasingly rely on self-financing as the market grows prefer a free flowof labor.