Welfare Analysis of the Vehicle Quota System in China

34 Pages Posted: 30 May 2017

See all articles by Junji Xiao

Junji Xiao

The Chinese University of Hong Kong (CUHK) - Department of Decision Sciences & Managerial Economics

Xiaolan Zhou

Shanghai University of Finance and Economics

Wei‐Min Hu

National Chengchi University (NCCU)

Date Written: May 2017

Abstract

This article presents a welfare analysis of the vehicle quota system of Shanghai, China. The empirical findings suggest that the quota system leads to both welfare loss as a result of reduction in vehicle transactions and welfare gain because of less externality of auto consumption. The net effect depends on the shadow price of the marginal externality, the assumption of vehicle lifetime, and market conditions such as consumers' intrinsic preference for vehicles. Compared to a progressive tax system, the quota system is less effective in vehicle control but more efficient in improving social welfare.

Suggested Citation

Xiao, Junji and Zhou, Xiaolan and Hu, Wei‐Min, Welfare Analysis of the Vehicle Quota System in China (May 2017). International Economic Review, Vol. 58, Issue 2, pp. 617-650, 2017, Available at SSRN: https://ssrn.com/abstract=2976610 or http://dx.doi.org/10.1111/iere.12229

Junji Xiao (Contact Author)

The Chinese University of Hong Kong (CUHK) - Department of Decision Sciences & Managerial Economics ( email )

Shatin, N.T.
Hong Kong

Xiaolan Zhou

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China
862165903151 (Phone)

Wei‐Min Hu

National Chengchi University (NCCU) ( email )

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei, 11623
Taiwan

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