The Economics of Administering Import Quotas with Licenses-on-Demand in Agriculture

Posted: 8 May 2006

See all articles by Jana Hranaiova

Jana Hranaiova

Public Company Oversight Board

Harry de Gorter

Cornell University - School of Applied Economics and Management

James E. Falk

George Washington University - School of Engineering and Applied Science (SEAS)

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.

Suggested Citation

Hranaiova, Jana and de Gorter, Harry and Falk, James E., The Economics of Administering Import Quotas with Licenses-on-Demand in Agriculture. American Journal of Agricultural Economics, Vol. 88, No. 2, pp. 338-350, May 2006. Available at SSRN: https://ssrn.com/abstract=896336 or http://dx.doi.org/10.1111/j.1467-8276.2006.00862.x

Jana Hranaiova (Contact Author)

Public Company Oversight Board ( email )

1666 Kase Street
Washington, DC 20006
United States

Harry De Gorter

Cornell University - School of Applied Economics and Management ( email )

248 Warren Hall
Ithaca, NY 14853
United States
607-255-8076 (Phone)

James E. Falk

George Washington University - School of Engineering and Applied Science (SEAS) ( email )

Operations Research
Washington, DC 20052
United States
(202) 994-7516 (Phone)
(202) 994-40245 (Fax)

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