WELFARE ANALYSIS OF THE VEHICLE QUOTA SYSTEM IN CHINA

Publication Type:
Journal Article
Citation:
International Economic Review, 2017, 58 (2), pp. 617 - 650
Issue Date:
2017-05-01
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© (2017) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association This article presents a welfare analysis of the vehicle quota system of Shanghai, China. The empirical findings suggest that the quota system leads to both welfare loss as a result of reduction in vehicle transactions and welfare gain because of less externality of auto consumption. The net effect depends on the shadow price of the marginal externality, the assumption of vehicle lifetime, and market conditions such as consumers' intrinsic preference for vehicles. Compared to a progressive tax system, the quota system is less effective in vehicle control but more efficient in improving social welfare.
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