Output Subsidies and Quotas under Uncertainty and Firm Heterogeneity

Bernardo Moreno () and Jose Torres ()

International Journal of Business and Economics, 2007, vol. 6, issue 2, 147-160

Abstract: This paper studies the relative efficiency of two kinds of regulations, quantity restrictions (quotas) and output subsidies, in an imperfectly competitive market in the presence of two sources of uncertainty, costs and prices. We find that when these two sources of uncertainty are independently distributed, the output subsidy instrument has a comparative advantage over the quantity instrument. However, when we take into account the possibility of correlation between the random components and across firms' marginal costs, we find that a positive (negative) correlation tends to favor the quantity (subsidy) instrument. Finally, we show that when the correlation is positive, it is possible to find situations in which the quantity instrument has comparative advantages over the subsidy instrument.

Keywords: cost uncertainty; demand uncertainty; firm heterogeneity; output subsidy; quota (search for similar items in EconPapers)
JEL-codes: D8 L51 (search for similar items in EconPapers)
Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://ijbe.fcu.edu.tw/assets/ijbe/past_issue/No.06-2/pdf/vol_6-2-5.pdf (application/pdf)
https://ijbe.fcu.edu.tw/assets/ijbe/past_issue/No.06-2/abstract/05.html (text/html)

Related works:
Working Paper: Output subsidies and quotas under uncertainty and firm heterogeneity (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ijb:journl:v:6:y:2007:i:2:p:147-160

Access Statistics for this article

International Journal of Business and Economics is currently edited by Hsiang-Tsai Chiang (Editor-in-Chief), Chiung-Ju Huang (Editor-in-Chief), Feng-Jyh Lin (Associate Editor), Tzu-Ching Weng (Associate Editor), Hsin-Yi Huang (Managing Editor) and Szu-Hsien Ho (Managing Editor)

More articles in International Journal of Business and Economics from School of Management Development, Feng Chia University, Taichung, Taiwan Contact information at EDIRC.
Bibliographic data for series maintained by Szu-Hsien Ho ().