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Tariffying Auctions

Randolph McAfee, Wendy Takacs and Daniel Vincent

RAND Journal of Economics, 1999, vol. 30, issue 1, 158-179

Abstract: A strategy to convert quotas to tariffs is to auction the quota rights and use the realized auction prices as guides to setting tariffs. In the 1980s, New Zealand employed auctions to allocate quota licenses. We analyze the relationship between tariff-equivalents and auction prices for auctions with resale. Using panel data from New Zealand's quota license auctions, we estimate the expected value of the tariff equivalent. We exploit data from the secondary market prices to test the model's predictions. The predictions fail, suggesting either that auction prices may understate or that aftermarket prices overstate the true tariff equivalent.

Date: 1999
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