IDEAS home Printed from https://ideas.repec.org/a/bpj/bejeap/vcontributions.3y2004i1n8.html
   My bibliography  Save this article

Quantity Controls, License Transferability, and the Level of Investment

Author

Listed:
  • Krishna Kala M

    (Pennsylvania State University)

  • Tan Ling Hui

    (International Monetary Fund)

  • Ranjan Ram

    (University of Florida)

Abstract

This paper models investment/entry decisions in a competitive industry that is subject to a quantity control, either on output or on a production input. The quantity control is implemented via the sale of licenses for the restricted output/input. We show that liberalizing the quantity control could reduce investment in the industry under certain circumstances. Furthermore, the level of investment in the industry is different depending on whether the licenses are tradable or not. Key factors to consider are the elasticity of demand for the final good and the degree of input substitutability. Two examples are presented to illustrate the results.

Suggested Citation

  • Krishna Kala M & Tan Ling Hui & Ranjan Ram, 2004. "Quantity Controls, License Transferability, and the Level of Investment," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-27, July.
    • Handle: RePEc:bpj:bejeap:v:contributions.3:y:2004:i:1:n:8
    DOI: 10.2202/1538-0645.1206
    as

    Download full text from publisher

    File URL: https://doi.org/10.2202/1538-0645.1206
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.2202/1538-0645.1206?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Pindyck, Robert S, 1993. "A Note on Competitive Investment under Uncertainty," American Economic Review, American Economic Association, vol. 83(1), pages 273-277, March.
    2. Krishna, Kala & Tan, Ling Hui, 1999. "Transferable Licenses versus Nontransferable Licenses: What Is the Difference?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 785-800, August.
    3. Judd, Kenneth L., 1985. "The law of large numbers with a continuum of IID random variables," Journal of Economic Theory, Elsevier, vol. 35(1), pages 19-25, February.
    4. Batra, Raveendra N & Ullah, Aman, 1974. "Competitive Firm and the Theory of Input Demand under Price Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 537-548, May/June.
    5. Hartman, Richard, 1976. "Factor Demand with Output Price Uncertainty," American Economic Review, American Economic Association, vol. 66(4), pages 675-681, September.
    6. 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.
    7. Caballero, Ricardo J, 1991. "On the Sign of the Investment-Uncertainty Relationship," American Economic Review, American Economic Association, vol. 81(1), pages 279-288, March.
    8. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
    9. Appelbaum, Elie & Katz, Eliakim, 1986. "Measures of Risk Aversion and Comparative Statics of Industry Equilibrium," American Economic Review, American Economic Association, vol. 76(3), pages 524-529, June.
    10. Squires, Dale, 1994. "Firm behavior under input rationing," Journal of Econometrics, Elsevier, vol. 61(2), pages 235-257, April.
    11. Haruna, Shoji, 1992. "The comparative statics of a competitive industry with free entry and uncertainty," Japan and the World Economy, Elsevier, vol. 4(3), pages 239-249, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Geoffrey Turnbull, 1993. "Incentive compatibility and the quantity-setting competitive firm under demand uncertainty," Journal of Economics, Springer, vol. 58(1), pages 77-90, February.
    2. Cherchye, L. & Post, G.T., 2001. "Methodological Advances in Dea," ERIM Report Series Research in Management ERS-2001-53-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    3. Ana Paula Martins, 2008. "Uninsurable Risks: Uncertainty in Production, the Value of Information and Price Dispersion," Economics Bulletin, AccessEcon, vol. 28(8), pages 1.
    4. Richard Watt, 2020. "An Overlooked Result on the Competitive Firm under Output Price Risk: Are Factor Demand Curves Downward Sloping?," Working Papers in Economics 20/11, University of Canterbury, Department of Economics and Finance.
    5. Hennessy, David A., 1998. "Industry equilibrium under price distribution and cost shifts," Journal of Economics and Business, Elsevier, vol. 50(6), pages 509-523, November.
    6. Pan, Shihua, 1990. "The microfoundations of mixed system of planning and markets: some theoretical considerations and an empirical analysis of the Chinese agriculture," ISU General Staff Papers 1990010108000010876, Iowa State University, Department of Economics.
    7. Kit Pong Wong, 2003. "Forward Markets and the Behaviour of the Competitive Firm with Production Flexibility," Bulletin of Economic Research, Wiley Blackwell, vol. 55(3), pages 303-310, July.
    8. Guy Meunier, 2014. "Risk Aversion and Technology Portfolios," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(4), pages 347-365, June.
    9. Broll, Udo & Wong, Keith K.P., 2010. "The firm under uncertainty: capital structure and background risk," Dresden Discussion Paper Series in Economics 04/10, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    10. Riedl, Arno & van Winden, Frans, 2012. "Input versus output taxation in an experimental international economy," European Economic Review, Elsevier, vol. 56(2), pages 216-232.
    11. Hennessy, David A., 1993. "Applications of contingent claims theory to microeconomic problems," ISU General Staff Papers 1993010108000011822, Iowa State University, Department of Economics.
    12. Gianluca Femminis, 2006. "Risk‐Aversion, Optimal Leverage And The Investment–Uncertainty Relation," Metroeconomica, Wiley Blackwell, vol. 57(2), pages 214-238, May.
    13. Ghosal, Vivek & Ye, Yang, 2019. "The impact of uncertainty on the number of businesses," Journal of Economics and Business, Elsevier, vol. 105(C).
    14. Fathali Firoozi, 1995. "On the Competitive Response to Technological Advance," The American Economist, Sage Publications, vol. 39(2), pages 61-64, October.
    15. Hennessy, David A., 1997. "Stochastic technologies and the adoption decision," Journal of Development Economics, Elsevier, vol. 54(2), pages 437-453, December.
    16. Mordecai Kurz, 2005. "Measuring the Ex-Ante Social Cost of Aggregate Volatility," Discussion Papers 04-006, Stanford Institute for Economic Policy Research.
    17. Hennessy, David A., 1997. "Equilibrium in production and futures markets," Journal of Economics and Business, Elsevier, vol. 49(5), pages 399-418.
    18. Marco de Pinto & Laszlo Goerke, 2022. "Cost uncertainty in an oligopoly with endogenous entry," Bulletin of Economic Research, Wiley Blackwell, vol. 74(4), pages 927-948, October.
    19. Udo Broll & Kit Wong, 2013. "The firm under uncertainty: real and financial decisions," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 36(2), pages 125-136, November.
    20. Watt, Richard, 2020. "Overlooked results on the competitive firm under output price risk: Alternative sufficient conditions for downward sloping factor demand curves," Economics Letters, Elsevier, vol. 196(C).

    More about this item

    Keywords

    quotas; licensing; transferability; tradable quotas; entry; investment;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:bejeap:v:contributions.3:y:2004:i:1:n:8. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.