The Effect of Supply Management on Herd Size in Alberta Dairy

Timothy J. Richards and Scott R. Jeffrey

American Journal of Agricultural Economics, 1997, vol. 79, issue 2, 555-565

Abstract: A supply management program limits the aggregate supply of a commodity, often through the use of marketable quota licenses. The static, aggregate welfare effects of supply controls are well known, but the farm-level, dynamic effects on dairy investment are not. A theoretical cost-of-adjustment model is used to show that supply management reduces the rate of quasi-fixed input adjustment at the farm level. In fact, when a quasi-fixed input is complementary to quota licenses, investment or disinvestment can be impaired to such an extent that the input moves away from the long-run equilibrium. As a result, overinvestment in this input can significantly reduce productivity growth. Copyright 1997, Oxford University Press.

Date: 1997
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