Auctions for Transferable Objects: Theory and Evidence from the Vehicle Quota System in Singapore

• Main Authors: Lee, David K. C., KOH, Winston T. H.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 1993
• Subjects: Economics
• Online Access: https://ink.library.smu.edu.sg/soe_research/210
• Institution: Singapore Management University

The vehicle quota system was introduced in Singapore in May, 1990 to directly control the vehicle population. Under the system, anyone who intends to purchase a vehicle must obtain a certificate of entitlement (COE). The COEs of the various categories of vehicles are auctioned monthly. Before October, 1991, COEs were transferable once, but rumors about speculation caused the government to make the COEs in 6 car categories non-transferable for a period of one year. This situation provides an opportunity to study the COE premia to see if there is any truth in the allegation that the rapid increase in COE prices after the Gulf War and before October, 1991 was due largely to speculative activities. The results indicate that while the conversion to non-transferability eliminated speculation, it has also intensified competition among automobile distributors. Auctions for non-transferable COEs in fact led to higher COE prices in 3 of the 4 categories.