Abstract
This study analyses the welfare costs of trade distortions in the exchange of milk quota by simulating potential quota trade for 1992/93 subject to various trade restrictions. Efficient quota allocation, in an unrestricted market, comes about when the price of quota is 0.39 guilders per kilogram in 1992/93 prices. A combination of a floor of 10 thousand kilograms on quota supply and a ceiling of 75 thousand kilograms on quota demand results in an efficiency loss of 2.29 per cent of total profit without trade distortions. Incorporating a margin of 2 per cent between the demand and supply price has a minor effect, the total efficiency loss being 0.13 per cent. Another 0.13 per cent accrues to intermediates in quota trade as transfer costs. Copyright 1997 by Oxford University Press.
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