Quantity Controls, License Transferability, and the Level of Investment
AbstractThis 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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Bibliographic InfoArticle provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.
Volume (Year): 3 (2004)
Issue (Month): 1 (July)
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Web page: http://www.degruyter.com
Other versions of this item:
- Kala Krishna & Ling Hui Tan & Ram Ranjan, 2002. "Quantity Controls, License Transferability, and the Level of Investment," NBER Working Papers 8796, National Bureau of Economic Research, Inc.
- Ling Hui Tan & Kala Krishna & Ram Ranjan, 2001. "Quality Controls, License Transferability and the Level of Investment," IMF Working Papers 01/206, International Monetary Fund.
- F3 - International Economics - - International Finance
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