Quantity Controls, License Transferability, and the Level of Investment
This 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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Volume (Year): 3 (2004)
Issue (Month): 1 (July)
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References listed on IDEAS
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- Pindyck, Robert S, 1993. "A Note on Competitive Investment under Uncertainty," American Economic Review, American Economic Association, vol. 83(1), pages 273-277, March.
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- Haruna, Shoji, 1992. "The comparative statics of a competitive industry with free entry and uncertainty," Japan and the World Economy, Elsevier, vol. 4(3), pages 239-249, November. Full references (including those not matched with items on IDEAS)
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