Quotas in General Equilibrium

We analyze economies with quotas and other quantity-based distortions. We show that any feasible, distorted allocation of resources can be implemented as the competitive equilibrium of an economy with quotas. Unlike economies with wedges, economies with quotas are constrained efficient and thus satisfy macro-envelope conditions. This means that the effects of changes in technologies, distortions, or policies can be expressed in terms of a small set of sufficient statistics. We provide a non-parametric and nonlinear characterization of the effects of quota and productivity changes on aggregate output. We also calculate the costs of misallocation due to quotas. These costs are expressed in terms of the price elasticities of an inverse demand system capturing how quota prices respond to changes in quota levels. We illustrate our results using several examples: we estimate efficiency gains from increasing the cap on H-1B visas, relaxing zoning restrictions on single-family housing in American cities, removing capital controls in Argentina, phasing out U.S. quotas on Chinese clothing and textiles, and eliminating the taxicab medallion system in New York City. Our results offer a flexible method for quantifying the costs of quota distortions and the effects of policy reforms across these settings.