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 under the existence of two sources of uncertainty: uncertainty in both costs and prices. We find that when the two sources of uncertainty are independently distributed, the output subsidy instrument has 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 advantage over the subsidy instrument.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Centro de Estudios Andaluces in its series Economic Working Papers at Centro de Estudios Andaluces with number E2005/24.
Length: 21 pages
Date of creation: 2005
Date of revision:
Cost uncertainty; demand uncertainty; firm heterogeneity; output subsidy and quantity instruments;
Other versions of this item:
- Bernardo Moreno & Jose L. Torres, 2007. "Output Subsidies and Quotas under Uncertainty and Firm Heterogeneity," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 6(2), pages 147-160, August.
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Weitzman, Martin L, 1974.
"Prices vs. Quantities,"
Review of Economic Studies,
Wiley Blackwell, vol. 41(4), pages 477-91, October.
- Arvan, Lanny, 1991. "Flexibility versus commitment in strategic trade policy under uncertainty : A model of endogenous policy leadership," Journal of International Economics, Elsevier, vol. 31(3-4), pages 341-355, November.
- Hoel, Michael & Karp, Larry, 2001.
"Taxes and quotas for a stock pollutant with multiplicative uncertainty,"
Journal of Public Economics,
Elsevier, vol. 82(1), pages 91-114, October.
- Michael Hoel & Larry Karp, 1999. "Taxes and Quotas for a Stock Pollutant with Multiplicative Uncertainty," Working Papers 1999.15, Fondazione Eni Enrico Mattei.
- Hoel, Michael & Karp, Larry, 2000. "Taxes and Quotas for a Stock Pollutant with Multiplicative Uncertainty," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt9v86p5s7, Department of Agricultural & Resource Economics, UC Berkeley.
- James A. Brander & Barbara J. Spencer, 1984.
"Export Subsidies and International Market Share Rivalry,"
NBER Working Papers
1464, National Bureau of Economic Research, Inc.
- Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
- Stavins, Robert N., 1996. "Correlated Uncertainty and Policy Instrument Choice," Journal of Environmental Economics and Management, Elsevier, vol. 30(2), pages 218-232, March.
- Choi, Eun Kwan & Johnson, Stanley R, 1987.
"Consumer's Surplus and Price Uncertainty,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 407-11, June.
- Hwang, Hae-Shin & Schulman, Craig T., 1993. "Strategic non-intervention and the choice of trade policy for international oligopoly," Journal of International Economics, Elsevier, vol. 34(1-2), pages 73-93, February.
- Blair, Benjamin F. & Lewis, Tracy R. & Sappington, David E. M., 1995. "Simple regulatory policies in the presence of demand and cost uncertainty," Information Economics and Policy, Elsevier, vol. 7(1), pages 57-73, April.
- Cooper, Russell & Riezman, Raymond, 1989. "Uncertainty and the Choice of Trade Policy in Oligopolistic Industrie s," Review of Economic Studies, Wiley Blackwell, vol. 56(1), pages 129-40, January.
- Wu, Junjie, 2000. " Input Substitution and Pollution Control Under Uncertainty and Firm Heterogeneity," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 2(2), pages 273-88.
- Malcomson, James M, 1978. "Prices vs. Quantities: A Critical Note on the Use of Approximations," Review of Economic Studies, Wiley Blackwell, vol. 45(1), pages 203-07, February.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Teresa Rodríguez).
If references are entirely missing, you can add them using this form.