Industry dynamics under production constraints — The case of the EU dairy sector

Stefan Kersting, Silke Hüttel and Martin Odening

Economic Modelling, 2016, vol. 55, issue C, 135-151

Abstract: In 2015 the EU terminated its milk quota regime that was part of the Common Agricultural Policy for three decades. Against this background our paper analyses how a tradable/non-tradable production quota influences firm entry and exit in the agricultural industry. To this end we develop a dynamic stochastic equilibrium framework considering that a release of production capacity by exiting firms affects the investment options for entrants. Firms' investment and exit decisions depend on future output and quota prices, which in turn will be affected by the evolution of industry structures. Contrary to static models, we find that a quota system does not necessarily reduce the speed of adjustment within the industry since a tradable quota increases the liquidation value and provides an incentive for inefficient firms to cease production.

Keywords: Dynamic stochastic equilibrium; Production quota; Firm entry and exit; Industry dynamics; Dairy sector (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999316300177
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:55:y:2016:i:c:p:135-151

DOI: 10.1016/j.econmod.2016.02.006

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().