Abstract
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 language | English |
|---|---|
| Pages (from-to) | 617-650 |
| Number of pages | 34 |
| Journal | International Economic Review |
| Volume | 58 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - May 2017 |
| Externally published | Yes |
Funding
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.