NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Quota Licenses for Imported Capital Equipment: Could Bureaucrats Ever DoBetter than the Market?

Barbara J. Spencer

NBER Working Paper No. 5695
Issued in August 1996
NBER Program(s):   ITI

Despite valid criticisms, many developing countries have issued non-transferable import licenses to a limited number of final-good producers so as to restrict imports of an input capital equipment. This paper demonstrates that for a given import quota, such licensing restrictions can actually increase domestic production of both the input and the final product, but at the cost of reduced quota rents. Under pure competition, domestic welfare falls relative to the use of marketable quota licenses, but if foreigners would get the quota rents, or if external economies cause decreasing costs, then bureaucratic allocation can dominate.

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Document Object Identifier (DOI): 10.3386/w5695

Published: Journal of International Economics, Vol. 43, nos. 1 & 2 (August 1997): 1-29.

 
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