Output Subsidies and Quotas under Uncertainty and Firm Heterogeneity
AbstractThis paper studies the relative efficiency of two kinds of regulations, quantity restrictions (quotas) and output subsidies, in an imperfectly competitive market in the presence of two sources of uncertainty, costs and prices. We find that when these two sources of uncertainty are independently distributed, the output subsidy instrument has a comparative advantage over the quantity instrument. However, when we take into account the possibility of correlation between the random components and across firms' marginal costs, we find that a positive (negative) correlation tends to favor the quantity (subsidy) instrument. Finally, we show that when the correlation is positive, it is possible to find situations in which the quantity instrument has comparative advantages over the subsidy instrument.
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Bibliographic InfoArticle provided by College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan in its journal International Journal of Business and Economics.
Volume (Year): 6 (2007)
Issue (Month): 2 (August)
cost uncertainty; demand uncertainty; firm heterogeneity; output subsidy; quota;
Other versions of this item:
- Bernardo Moreno Jiménez & José Luis Torres Chacón, 2005. "Output subsidies and quotas under uncertainty and firm heterogeneity," Economic Working Papers at Centro de Estudios Andaluces E2005/24, Centro de Estudios Andaluces.
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
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