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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.

Suggested Citation

  • Krishna, Kala & Tan, Ling Hui, 1999. "Transferable Licenses versus Nontransferable Licenses: What Is the Difference?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 785-800, August.
  • 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. Bivins, Laura L. & Krishna, Kala, 2003. "Transferability of migration licences and the distribution of potential rents," Economics Letters, Elsevier, vol. 80(3), pages 323-328, September.
    3. Krishna Kala M & Tan Ling Hui & Ranjan Ram, 2004. "Quantity Controls, License Transferability, and the Level of Investment," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-29, July.
    4. Janda, Karel, 2009. "Signaling the Strength of a Market Entrant," MPRA Paper 17007, University Library of Munich, Germany.
    5. Ling Hui Tan, 2003. "Rationing Rules and Outcomes: The Experience of Singapore's Vehicle Quota System," IMF Staff Papers, Palgrave Macmillan, vol. 50(3), pages 1-5.

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