Welfare Analysis of the Vehicle Quota System in China

Junji XIAO, Xiaolan ZHOU*, Wei Min HU

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)peer-review

27 Citations (Scopus)


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.

Original languageEnglish
Pages (from-to)617-650
Number of pages34
JournalInternational Economic Review
Issue number2
Publication statusPublished - May 2017
Externally publishedYes

Bibliographical note

Xiaolan Zhou gratefully acknowledges the financial support of the National Natural Science Foundation of China (grant #71603159), the Innovation Program of the Shanghai Municipal Education Commission (grant 14ZSO77), and the support from NVIDIA Corporation with the donation of the Titan Black used for this research. We thank Shanjun Li, Gautam Gowrisankaran, and Thomas Ross for their comments and suggestions. We are grateful to the editor and three referees for their helpful comments. All remaining errors are ours.


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