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The Economics of Administering Import Quotas with Licenses‐on‐Demand in Agriculture
Author(s) -
Hranaiova Jana,
Gorter Harry,
Falk James
Publication year - 2006
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/j.1467-8276.2006.00862.x
Subject(s) - inefficiency , license , economics , microeconomics , perfect information , imperfect , business , incentive , industrial organization , monetary economics , political science , law , linguistics , philosophy
A Nash equilibrium is determined for licenses‐on‐demand import quotas where licenses are allocated on a prorated basis. Inefficiency is incurred because licenses are allocated to high‐cost firms. The ability to overbid exacerbates the inefficiency due to proportionate reductions in licenses. Quota expansion causes high‐cost firms to decrease their bids but reduces inefficiency. The entry of a new firm causes all incumbent firms to increase bids or bid the quota. Not penalizing firms for the non‐use of licenses increases inefficiency. The inefficiency impacts of tariff reductions, license fees, limits per firm, and imperfect information are also addressed.