The Economics of Administering Import Quotas with Licenses-on-Demand in Agriculture |
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| Authors: | Jana Hranaiova Harry de Gorter James Falk |
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| Affiliation: | Jana Hranaiova is senior financial economist at the Public Company Accounting Oversight Board, Washington, D.C., Harry de Gorter is associate professor at Cornell University, and James Falk is professor of Operations Research at The George Washington University. |
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| Abstract: | 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. |
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| Keywords: | import quotas licenses-on-demand Nash equilibrium prorated |
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