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Article
Quantity Controls, License Transferability, and the Level of Investment
The B.E. Journals in Economic Analysis & Policy (2006)
  • Kala M Krishna, Pennsylvania State University
  • Ling Hui Tan, International Monetary Fund
  • Ram Ranjan, 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.

Keywords
  • quotas,
  • licensing,
  • transferability,
  • tradable quotas,
  • entry,
  • investment
Publication Date
December, 2006
Citation Information
Kala M. Krishna, Ling Hui Tan, and Ram Ranjan. "Quantity Controls, License Transferability, and the Level of Investment" The B.E. Journals in Economic Analysis & Policy 3.1 (2004). Available at: http://works.bepress.com/ram_ranjan/1