Making Altruism Pay in Auction Quotas

40 Pages Posted: 17 Oct 2007 Last revised: 1 May 2021

See all articles by Kala Krishna

Kala Krishna

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

Date Written: January 1990

Abstract

With imperfectly competitive product markets, producers react to the auction of quota licenses by adjusting price upwards from the free trade level. As a result, license revenues are significantly lower than if markets were perfectly competitive. In fact, they are often zero unless quotas are very restrictive. In such markets, giving part of these revenues to the producers reduces the incentive to raise product prices and leads to the reappearance of revenues from auctioning quota licenses. With a foreign monopoly and no price discrimination, such a policy can lead to a Pareto improvement over free trade. The conditions under which such altruism raises welfare both from free trade and from the status quo are explored.

Suggested Citation

Krishna, Kala, Making Altruism Pay in Auction Quotas (January 1990). NBER Working Paper No. w3230, Available at SSRN: https://ssrn.com/abstract=468367

Kala Krishna (Contact Author)

Pennsylvania State University - Department of Economics ( email )

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