Transferable Licenses vs. Nontransferable Licenses: What is the Difference?

37 Pages Posted: 11 Jun 2000 Last revised: 28 Jun 2010

See all articles by Kala Krishna

Kala Krishna

Pennsylvania State University - Department of Economics; National Bureau of Economic Research (NBER)

Ling Hui Tan

International Monetary Fund (IMF) - European Department

Multiple version iconThere are 2 versions of this paper

Date Written: March 1996

Abstract

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 quota is quite restrictive. Despite this, if consumer surplus and license revenue have equal weight in the welfare 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 transferability depending on the restrictiveness of the quota.

Suggested Citation

Krishna, Kala and Tan, Ling Hui, Transferable Licenses vs. Nontransferable Licenses: What is the Difference? (March 1996). NBER Working Paper No. w5484, Available at SSRN: https://ssrn.com/abstract=225517

Kala Krishna (Contact Author)

Pennsylvania State University - Department of Economics ( email )

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Ling Hui Tan

International Monetary Fund (IMF) - European Department ( email )

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United States

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