OPTIMAL ALLOCATION OF QUOTAS

Consider a government which fixed the supply of a good (e.g. by an imp ort quota). Suppose the market for the good can be partitioned (e.g. s ales in different years or in different areas of the country can be co nsidered sales in different markets). We show that maximization of con sumer surplus in the domestic economy may require segmentation of the domestic market into two, but no more, parts. (C) 1998 Elsevier Scienc e S.A.