Transferable Licenses vs. Nontransferable Licences: What is the Difference?
This 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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- Riccardo Faini & Jaime Melo & Wendy Takacs, 1995.
"A Primer on the MFA Maze,"
The World Economy,
Wiley Blackwell, vol. 18(1), pages 113-135, 01.
- de Melo, Jaime & Faini, Riccardo, 1992. "A Primer on the MFA Maze," CEPR Discussion Papers 716, C.E.P.R. Discussion Papers.
- Faini, Riccardo & de Melo, Jaime & Takacs, Wendy, 1993. "A primer on the MFA maze," Policy Research Working Paper Series 1088, The World Bank.
- Faini, R. & Melo, J. de & Takacs, W., 1992. "A Primer on the MFA Maze," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva 92.15, Institut d'Economie et Econométrie, Université de Genève.