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

Author

Listed:
  • Kala Krishna
  • Ling Hui Tan
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 qouta is quite restrictive. Despite this, if consumer surplus and license revenue have equal weight in the welfate 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 transferabiality depending on the restrictiveness of the quota.

Suggested Citation

  • Kala Krishna & Ling Hui Tan, "undated". "Transferable Licenses vs. Nontransferable Licences: What is the Difference?," EPRU Working Paper Series 96-02, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:epruwp:96-02
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    References listed on IDEAS

    as
    1. Riccardo Faini & Jaime Melo & Wendy Takacs, 1995. "A Primer on the MFA Maze," The World Economy, Wiley Blackwell, vol. 18(1), pages 113-135, January.
    2. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    3. Lott, John R, Jr, 1987. "Licensing and Nontransferable Rents," American Economic Review, American Economic Association, vol. 77(3), pages 453-455, June.
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    Cited by:

    1. Spencer, Barbara J., 1997. "Quota licenses for imported capital equipment: Could bureaucrats ever do better than the market?," Journal of International Economics, Elsevier, vol. 43(1-2), pages 1-27, August.

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    More about this item

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing

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