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Transferable Licenses Versus Nontransferable Licenses: What is the Difference?
Author(s) -
Krishna Kala,
Tan Ling Hui
Publication year - 1999
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/1468-2354.00040
Subject(s) - license , presumption , economic surplus , revenue , economics , welfare , microeconomics , market power , transferable utility , price discrimination , function (biology) , finance , monopoly , computer science , game theory , market economy , political science , law , operating system , evolutionary biology , biology
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.