Quantity controls, license transferability, and the level of investment

Kala Krishna, Ling Hui Tan, Ram Ranjan

Research output: Contribution to journalReview article

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.

Original languageEnglish (US)
Pages (from-to)457-485
Number of pages29
JournalContributions to Economic Analysis and Policy
Volume3
Issue number1
DOIs
StatePublished - Jan 1 2004

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Industry
License
Transferability
Elasticity of demand
Factors
Substitutability

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)

Cite this

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Quantity controls, license transferability, and the level of investment. / Krishna, Kala; Tan, Ling Hui; Ranjan, Ram.

In: Contributions to Economic Analysis and Policy, Vol. 3, No. 1, 01.01.2004, p. 457-485.

Research output: Contribution to journalReview article

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