Transferable Licenses Versus Nontransferable Licenses: What is the Difference?

Abstract

This paper questions the presumption that transferable licenses are worth more and result in higher welfare. We show that the price of a transferable license may be lower than that of its nontransferable counterpart if the underlying quota is not very severe. However, transferability is preferable to nontransferability if consumer surplus and license revenue have equal weight in the welfare function. We also examine whether licenses will be monopolized by domestic producers with market power. The models have implications for several issues, including the design of pollution permits and how to maximize revenue from ticket sales.

On the Effects of Linking Cap-and-Trade Systems for $$\hbox {CO}_{2}$$ Emissions

“…Early preliminary intimations of this tendency are expressed inBohm (1992),Eyckmans and Proost (1996), andKrishna and Tan (1999). This issue is also discussed later inGreen et al (2014) and inMehling et al (2017).…”

Impact of banking and forward contracts on tradable permit markets

“…Hennessy and Roosen (1999) investigated whether firms whose future emissions are uncertain have any incentives for merger. Krishna and Tan (1999) and Ben-David et al (2000) investigate the effects of uncertainty about both the willingness-to-pay of firms and market prices. Montero (2000) studied a phased-in emissions trading program, similar to the U.S. S02 allowance trading program, with voluntary opt-in possibilities for nonregulated firms and an assumption of uncertain unrestricted emissions.…”

Quantity Controls, License Transferability, and the Level of Investment

“…A similar problem is analyzed in Spencer (1997), which considers the effects of a licensing requirement on imported capital equipment, comparing the outcome under an exogenous bureaucratic allocation (nontransferable quota licenses) with that under a market allocation (transferable licenses). Unlike Spencer (1997), however, the analysis used in this paper draws on the model(s) developed in Krishna and Tan (1999), which compares the endogenous outcomes from transferable and nontransferable regimes of quota licenses.…”