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Transferable Licenses versus Nontransferable Licenses: What Is the Difference?

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  • Krishna, Kala
  • Tan, Ling Hui

Abstract

This paper questions the presumption that transferable licenses are worth more and result in higher welfare. We show that the price of a transferable license may be lower than that of its nontransferable counterpart if the underlying quota is not very severe. However, transferability is preferable to nontransferability if consumer surplus and license revenue have equal weight in the welfare function. We also examine whether licenses will be monopolized by domestic producers with market power. The models have implications for several issues, including the design of pollution permits and how to maximize revenue from ticket sales. Copyright 1999 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 40 (1999)
Issue (Month): 3 (August)
Pages: 785-800

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Handle: RePEc:ier:iecrev:v:40:y:1999:i:3:p:785-800

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Cited by:
  1. Akira Maeda, 2012. "Setting trigger price in emissions permit markets equipped with a safety valve mechanism," Journal of Regulatory Economics, Springer, vol. 41(3), pages 358-379, June.
  2. 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.
  3. Janda, Karel, 2009. "Signaling the Strength of a Market Entrant," MPRA Paper 17007, University Library of Munich, Germany.
  4. Bivins, Laura L. & Krishna, Kala, 2001. "Transferability of Migration Licenses and the Distribution of Potential Rents," Working Papers 9-01-1, Pennsylvania State University, Department of Economics.
  5. Ling Hui Tan, 2001. "Rationing Rules and Outcomes," IMF Working Papers 01/136, International Monetary Fund.

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