Quantity Controls, License Transferability, and the Level of Investment

Ling Hui Tan, Kala Krishna () and Ram Ranjan

No 2001/206, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; mover accent; production function; Quotas; licensing; transferability; tradable quotas; entry; investment; license price; product price; productivity shock; output effect; license input; industry output; Demand elasticity; Commodity markets; Asset prices; Productivity; Agroindustries (search for similar items in EconPapers)
Pages: 33
Date: 2001-12-01
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Related works:
Journal Article: Quantity Controls, License Transferability, and the Level of Investment (2004)
Working Paper: Quantity Controls, License Transferability, and the Level of Investment (2002)
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