NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Making Altruism Pay in Auction Quotas

Kala Krishna

NBER Working Paper No. 3230
Issued in January 1990
NBER Program(s):   ITI   IFM

With imperfectly competitive product markets, producers react to the auction of quota licenses by adjusting price upwards from the free trade level. As a result, license revenues are significantly lower than if markets were perfectly competitive. In fact, they are often zero unless quotas are very restrictive. In such markets, giving part of these revenues to the producers reduces the incentive to raise product prices and leads to the reappearance of revenues from auctioning quota licenses. With a foreign monopoly and no price discrimination, such a policy can lead to a Pareto improvement over free trade. The conditions under which such altruism raises welfare both from free trade and from the status quo are explored.

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Document Object Identifier (DOI): 10.3386/w3230

Published: International Trade and Trade Policy, edited by E. Helpman and A. Razin June, 1991 MIT Press: Cambridge, MA

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