Ling Hui Tan

Transferable Licenses versus Nontransferable Licenses: What Is the Difference?

This paper questions the presumption that transferable licenses are worth more and result in higher welfare. We show that the price of a transferable license may be lower than that of its nontransferable counterpart if the underlying quota is not very severe. However, transferability is preferable to nontransferability if consumer surplus and license revenue have equal weight in the welfare function. We also examine whether licenses will be monopolized by domestic producers with market power. The models have implications for several issues, including the design of pollution permits and how to maximize revenue from ticket sales. Copyright 1999 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Imputing license prices: limitations of a cost-based approach

Abstract In this paper, we make use of recently available data on Indonesian Multi-Fibre Arrangement quota license prices to examine the accuracy of the procedure commonly used in the literature to impute such prices from Hong Kong data. We find that the actual Indonesian license prices fall short of the imputed license prices in most instances. We provide some possible explanations for this outcome, and re-do the calculations to adjust for these additional considerations.

A Note on India's MFA Quota Allocation System: The Effects of Subcategorization

This paper considers the ramifications of quota subcategorization, a practice which characterizes Indias system of allocating Multi-Fibre Arrangement (MFA) licenses. We compare the justifications commonly given for this practice with the optimal policies to attain those objectives.

Trade Policy with Heterogeneous Traders: Do Quotas Get a Bum Rap?

This paper considers the effects of trade policy-tariffs and quotas-when importing is done by competitive traders who are identical ex ante but differ ex post. We show that the standard equivalence results no longer hold and the conventional ranking of tariffs and quotas is turned on its head: quotas are not as bad for welfare as previously believed, while tariffs may restrict trade by more than originally intended. Furthermore, the allocation of property rights (quota licenses) has real effects beyond the distribution of rents; this, in turn, has implications for the effects of corruption on welfare.

Quantity Controls, License Transferability, and the Level of Investment

This paper models investment/entry decisions in a competitive industry that is subject to a quantity control on an input for production. The quantity control is implemented by auctioning licenses for the restricted input (e.g., a pollution permit or a production license). The paper shows that liberalizing the quantity control could reduce investment in the industry under certain circumstances. Furthermore, the level of investment is quite different when licenses are tradable than when they are not. Key factors in the comparison include the elasticity of demand for the final good and the degree of input substitutability. Two examples are computed to illustrate the results.