The Black Market for Beijing License Plates

46 Pages Posted: 5 Dec 2019

See all articles by Øystein Daljord

Øystein Daljord

University of Chicago, Booth School of Business

Mandy Hu

The Chinese University of Hong Kong (CUHK) - Department of Marketing

Guillaume Pouliot

Harris School of Public Policy

Junji Xiao

University of Technology Sydney (UTS)

Date Written: December 2, 2019

Abstract

Black markets can reduce the effects of distortionary regulations by reallocating scarce resources towards those who value them the most. The illegal nature of black markets however creates transaction costs that reduce the gains from trade. We take a partial identification approach to infer gains from trade and transaction costs in the black market for Beijing car license plates which emerged following their recent rationing. We use optimal transport methods to non-parametrically estimate a lower bound on the volume of unobserved black market trade under weak assumptions using comprehensive car sales data. We find that at least 11% of the quota of license plates is illegally traded. We next infer gains from trade and transaction costs and tighten the bounds on the volume of trade under further assumptions on black market transactions. The inferred size of the transaction costs suggests severe market frictions: between 61% and 82% of the realized gains from trade are lost to transaction costs, while between 7% and 28% of the potential gains from trade are realized in the black market.

Keywords: informal economy/underground economy, optimal transport, partial identification, semiparametric and nonparametric methods

JEL Classification: E26, D450, P230, C140

Suggested Citation

Daljord, Øystein and Hu, Mandy and Pouliot, Guillaume and Xiao, Junji, The Black Market for Beijing License Plates (December 2, 2019). Chicago Booth Research Paper No. 19-25, Available at SSRN: https://ssrn.com/abstract=3497076 or http://dx.doi.org/10.2139/ssrn.3497076

Øystein Daljord (Contact Author)

University of Chicago, Booth School of Business ( email )

Chicago, IL 60637
United States
7738342146 (Phone)

HOME PAGE: http://faculty.chicagobooth.edu/oystein.daljord/index.html

Mandy Hu

The Chinese University of Hong Kong (CUHK) - Department of Marketing ( email )

Room 1101, 11/F, Cheung Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
China

Guillaume Pouliot

Harris School of Public Policy ( email )

1155 East 60th Street
Chicago, IL 60637
United States

HOME PAGE: http://https://sites.google.com/site/guillaumeallairepouliot/

Junji Xiao

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

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