EconPapers    
Economics at your fingertips  
 

The Simple Analytics of Transferable Production Quota: Implications for the Marginal Cost of Ontario Milk Production

Kevin Z. Chen and Karl Meilke

No 24127, Staff Paper Series from University of Alberta, Department of Resource Economics and Environmental Sociology

Abstract: Using the fact that separate markets exist for used and unused quota, this paper derives a formula to compute the marginal cost of the milk production using a competitive dynamic optimization model. It is showed that, under a perfect competitive quota market, the difference between unused quota and used quota prices gives an exact measure of rental value of quota and thus marginal cost. Policy risk is showed to have no effect on the calculation of equilibrium rental value of quota. The formula is modified to allow for the presence of a transfer assessment. It is showed that the effect of transfer assessment on the calculation of equilibrium rental value of quota depends on the elasticities of demand and supply for quota as well as the level of the transfer assessment. Using empirically estimated elasticities of demand and supply for quota, above modified formula is applied to compute the marginal costs of Ontario milk production over the period 1980/81 to 1994/95. While it represents an improvement over Barichello's approach, the measured marginal costs are not totally satisfactory. The problem lies in the fact that the monthly rental rates are unstable both within the dairy year and across the time series. The results here suggest that one must be cautious in the use of the difference between unused and used quota prices as a measure of rental rate.

Keywords: Livestock; Production/Industries (search for similar items in EconPapers)
Pages: 29
Date: 1996
References: Add references at CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed

Downloads: (external link)
http://ageconsearch.umn.edu/record/24127/files/sp960017.pdf (application/pdf)

Related works:
Journal Article: The Simple Analytics of Transferable Production Quota: Implications for the Marginal Cost of Ontario Milk Production (1998) Downloads
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:ags:ualbsp:24127

DOI: 10.22004/ag.econ.24127

Access Statistics for this paper

More papers in Staff Paper Series from University of Alberta, Department of Resource Economics and Environmental Sociology Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().

 
Page updated 2020-06-23
Handle: RePEc:ags:ualbsp:24127