In a static perfectly competitive model, it is well understood that a quota license has a scarcity value. In a dynamic setting with uncertainty, the license price has two additional components, both of which arise from the fact that the license is valid for an entire year. They are the asset market component and the option value component. In this paper, we construct a model of the quota license market in which the license demand and supply functions incorporate these various components, and estimate it using monthly data on apparel quota licenses from Hong Kong.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics