Quantity Controls, License Transferability, and the Level of Investment

42 Pages Posted: 21 Feb 2002 Last revised: 26 Oct 2010

See all articles by Kala Krishna

Kala Krishna

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

Ram Ranjan

University of Florida Institute of Food and Agricultural Sciences

Ling Hui Tan

International Monetary Fund (IMF) - European Department

Multiple version iconThere are 2 versions of this paper

Date Written: February 2002

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. 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.

Suggested Citation

Krishna, Kala and Ranjan, Ram and Tan, Ling Hui, Quantity Controls, License Transferability, and the Level of Investment (February 2002). NBER Working Paper No. w8796, Available at SSRN: https://ssrn.com/abstract=301417

Kala Krishna (Contact Author)

Pennsylvania State University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Ram Ranjan

University of Florida Institute of Food and Agricultural Sciences ( email )

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HOME PAGE: http://www.ifas.ufl.edu/

Ling Hui Tan

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

700 19th St. NW
Washington, DC 20431
United States

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