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Quantity Controls, License Transferability, and the Level of Investment

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Author Info
Kala Krishna (Pennsylvania State University)
Ling Hui Tan (International Monetary Fund)
Ram Ranjan (University of Florida)

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Abstract

This paper models investment/entry decisions in a competitive industry that is subject to a quantity control, either on output or on a production input. The quantity control is implemented via the sale of licenses for the restricted output/input. We show that liberalizing the quantity control could reduce investment in the industry under certain circumstances. Furthermore, the level of investment in the industry is different depending on whether the licenses are tradable or not. Key factors to consider are the elasticity of demand for the final good and the degree of input substitutability. Two examples are presented to illustrate the results.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Contributions to Economic Analysis & Policy.

Volume (Year): 3 (2004)
Issue (Month): 1 ()
Pages: 1206-1206
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Handle: RePEc:bep:eapcon:v:3:y:2004:i:1:p:1206-1206

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Related research
Keywords: quotas licensing transferability tradable quotas entry investment

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Find related papers by JEL classification:
F10 - International Economics - - Trade - - - General

References listed on IDEAS
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  1. Spencer, Barbara J., 1997. "Quota licenses for imported capital equipment: Could bureaucrats ever do better than the market?," Journal of International Economics, Elsevier, vol. 43(1-2), pages 1-27, August. [Downloadable!] (restricted)
    Other versions:
  2. Caballero, Ricardo J, 1991. "On the Sign of the Investment-Uncertainty Relationship," American Economic Review, American Economic Association, vol. 81(1), pages 279-88, March. [Downloadable!] (restricted)
  3. Appelbaum, Elie & Katz, Eliakim, 1986. "Measures of Risk Aversion and Comparative Statics of Industry Equilibrium," American Economic Review, American Economic Association, vol. 76(3), pages 524-29, June. [Downloadable!] (restricted)
  4. Haruna, Shoji, 1992. "The comparative statics of a competitive industry with free entry and uncertainty," Japan and the World Economy, Elsevier, vol. 4(3), pages 239-249, November. [Downloadable!] (restricted)
  5. Batra, Raveendra N & Ullah, Aman, 1974. "Competitive Firm and the Theory of Input Demand under Price Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 537-48, May/June. [Downloadable!] (restricted)
  6. Pindyck, Robert S, 1993. "A Note on Competitive Investment under Uncertainty," American Economic Review, American Economic Association, vol. 83(1), pages 273-77, March. [Downloadable!] (restricted)
  7. Krishna, Kala & Tan, Ling Hui, 1999. "Transferable Licenses versus Nontransferable Licenses: What Is the Difference?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 785-800, August.
  8. Weninger, Quinn & Just, Richard E, 2002. " Firm Dynamics with Tradable Output Permits," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 84(3), pages 572-84, August. [Downloadable!] (restricted)
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  9. Judd, Kenneth L., 1985. "The law of large numbers with a continuum of IID random variables," Journal of Economic Theory, Elsevier, vol. 35(1), pages 19-25, February. [Downloadable!] (restricted)
  10. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March. [Downloadable!] (restricted)
  11. Hartman, Richard, 1976. "Factor Demand with Output Price Uncertainty," American Economic Review, American Economic Association, vol. 66(4), pages 675-81, September. [Downloadable!] (restricted)
  12. Squires, Dale, 1994. "Firm behavior under input rationing," Journal of Econometrics, Elsevier, vol. 61(2), pages 235-257, April. [Downloadable!] (restricted)
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