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Quantity Controls, License Transferability, and the Level of Investment

Kala Krishna (), Ling Hui Tan () and Ram Ranjan

The B.E. Journal of Economic Analysis & Policy, 2004, vol. 3, issue 1, 1-29

Abstract: 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.

Date: 2004
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Working Paper: Quantity Controls, License Transferability, and the Level of Investment (2002) Downloads
Working Paper: Quantity Controls, License Transferability, and the Level of Investment (2001) Downloads
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