Transferable Licenses vs. Nontransferable Licences: What is the Difference?
AbstractThis paper questions the presumption that transferable quota licenses are worth more and result in higher welfare. We show that the price of a transferable license will tend to be higher than that of its nontransferable counterpart only if the underlying qouta is quite restrictive. Despite this, if consumer surplus and license revenue have equal weight in the welfate function, transferability is preferable to nontransferability. If their weights are unequal, then the comparison could go either way. We also show that increased uncertainty, in the form of a mean preserving spread, does not affect the license price under nontransferability and could raise or lower the level of the license price with transferabiality depending on the restrictiveness of the quota.
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Bibliographic InfoPaper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 96-02.
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Other versions of this item:
- Kala Krishna & Ling Hui Tan, 1996. "Transferable Licenses vs. Nontransferable Licenses: What is the Difference?," NBER Working Papers 5484, National Bureau of Economic Research, Inc.
- Krishna, K. & Tan, L.H., 1996. "Transferable Licenses vs. Nontransferable Licences: What Is the Difference?," Papers 2-96-2, Pennsylvania State - Department of Economics.
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- D45 - Microeconomics - - Market Structure and Pricing - - - Rationing; Licensing
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- 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.
- Barbara J. Spencer, 1996. "Quota Licenses for Imported Capital Equipment: Could Bureaucrats Ever DoBetter than the Market?," NBER Working Papers 5695, National Bureau of Economic Research, Inc.
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