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 on an input for production. The quantity control is implemented by auctioning licenses for the restricted input (e.g., a pollution permit or a production license). The paper shows that liberalizing the quantity control could reduce investment in the industry under certain circumstances. Furthermore, the level of investment is quite different when licenses are tradable than when they are not. Key factors in the comparison include the elasticity of demand for the final good and the degree of input substitutability. Two examples are computed to illustrate the results.
|Date of creation:||01 Dec 2001|
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- Batra, Raveendra N & Ullah, Aman, 1974. "Competitive Firm and the Theory of Input Demand under Price Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 537-48, May/June.
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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.
- 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.
- Pindyck, Robert S, 1993. "A Note on Competitive Investment under Uncertainty," American Economic Review, American Economic Association, vol. 83(1), pages 273-77, March.
- Caballero, Ricardo J, 1991. "On the Sign of the Investment-Uncertainty Relationship," American Economic Review, American Economic Association, vol. 81(1), pages 279-88, March.
- Hartman, Richard, 1976. "Factor Demand with Output Price Uncertainty," American Economic Review, American Economic Association, vol. 66(4), pages 675-81, September.
- Appelbaum, Elie & Katz, Eliakim, 1986. "Measures of Risk Aversion and Comparative Statics of Industry Equilibrium," American Economic Review, American Economic Association, vol. 76(3), pages 524-29, June.
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