Quota Price Research Articles

Tradable emission quotas, technical progress and climate change

ABSTRACTThe paper reviews two alternative rules for allocation of property rights in a global greenhouse-gas emissions budget, assuming implementation of a tradablequota arrangement. These are the per capita rule and no-regrets-for-the-South (NRFTS) rule. The operation of a quota market under these alternative regimes is simulated on a spreadsheet, using 1990–1 data from 125 countries. A significant result is that once the South has secured a quota allocation based on the per capita principle, it stands collectively to lose from progress in abatement technology because of the strong link from technical progress to the world market price of quota. The more restricted NRFTS rule gives the South smaller gains from the quota system, but enables it to retain some of the rents from its own technical progress. Some implications for the South's position in future negotiations are noted.

Market Power in a System of Tradeable CO2, Quotas

This paper examines the connection between market power and the size of efficiency loss in a market for tradeable CO2 permits. Countries, not firms, are the players in the market. A situation is analyzed where some of the, participants have market power, i.e., they can influence the price of a CO2 quota. Each country with market power decides how many quotas to buy or sell, given the other market power countries' sales or purchases of quotas, and the behavior of countries without market power. The latter countries act as price takers. The market equilibrium is compared to a cost effective market situation in order to quantify the efficiency loss resulting from market power.

A MICROECONOMETRIC ANALYSIS OF MILK QUOTA TRANSFER: APPLICATION TO FRENCH PRODUCERS

In this paper, we use the duality theory framework and the concept of virtual or shadow price of a rationed good to analyse producer behaviour under output quota when individual quota rights can be leased or rented for one production cycle. We propose a formal model of tradable quota rights which allows us to determine the lease price of quota and the exchanged quantity at equilibrium. The implications of trading On farmers' decisions (output choice level and traded licences), and on their incomes, are derived formally. The theoretical framework is applied to a sample of French milk producers for the year 1991. We then determine efficiency gains and regional shifts in production that such a market would generate.

Le marché des quotas laitiers au Canada : une expérience originale

The Canadian Milk Quota Market: An Original Experiment, by Catherine Goudounèche. In 1970, Canada adopted quotas for manufacturing milk. Since then, each province has tried out different systems for the trading of these quotas between producers. These successive trials have resulted in the setting up of a single centralized market, which operates for quotas unconnected with the farm's assets and enjoys market conditions approaching perfect competition. This development has been accompanied by a rise in the price of quotas and the free market for quotas has acted as a restructuring tool for the Canadian milk sector by speeding up the concentration of holdings. An additional regulation has protected the production of certain fragile areas.

A Primer on the MFA Maze

It is generally agreed that the arrangements that have regulated trade in textiles and clothing have slowed the natural shift in comparative advantage from industrial countries to developing countries. But there is quite a bit of disagreement about how restrictive the Multi-Fibre Agreements (MFA) are. The authors address the potential sources of allocative inefficiency occasioned by the MFA and search for evidence that the MFA has indeed led to such inefficiency. In a theoretical section, they identify five sources of inefficiency relating to allocations across countries, across consumers, and among firms within constrained countries. In the empirical part of the paper, first they provide evidence of the restrictiveness of the quota arrangements from trends in import shares for aggregate categories of textiles and clothing, before and during the MFA. Then they provide evidence from a detailed examination of quota utilization rates and price differentials among EC importing countries. Among their findings: relatively high utilization rates across exporters suggest a relatively high degree (and stability) of quota bindingness across exporters; overshipment was highest for the most important (by shipment value) products; there is concentration among a few leading exports (China, Hong Kong, Taiwan, and Thailand) and a few importers (Benelux, Germany, and the United Kingdom); the data suggest a positive correlation between the coefficients of variation in prices and quota utilization rates for China, Hong Kong, and Korea suggesting that prices are related, as one would expect, to the degree of bindingness; and the data suggest that binding quotas would be associated with higher import prices.

A micro-economic analysis of dairy farming in the Netherlands

A unified framework for analyzing the short-term production relationships between outputs and inputs on Dutch dairy farms before and after the introduction of the milk quota system is presented. It is derived from duality theory and estimated using an incomplete panel of Dutch dairy farms. The theoretical framework fits the data well. The supply of unrestricted outputs and the demand for variable inputs are much more responsive to milk quota changes than to price changes. The average estimated shadow price of milk quota in 1984/85-1988/89 was 0.36 guilder per kilogram in 1980/81 prices. The scarcity of milk quota and resources is further investigated for different types of dairy farms. It appears that high shadow prices of quasi-fixed inputs go together with low shadow prices of milk quota. Copyright 1993 by Oxford University Press.

Rent Generation During the Transition to a Managed Fishery: The Case of the New Zealand ITQ System

This paper examines the generation of resource rent during the transition from an over-exploited to an efficiently managed fishery. A simple theoretical model is used to demonstrate that current industry returns may be low or even negative during this adjustment phase. A case in point is the New Zealand commercial fisheries which have recently become subject to a Quota Management System. Three sources of evidence on the level of resource rents generated during the initial years of the Quota Management System are examined and compared. These sources are: annual profitability data; the market price of perpetual quota; and the market price of annual lease quota. The evidence in some cases appears to be contradictory and an attempt is made to resolve or explain such differences. It is concluded that a better understanding of price determination in the quota market is required in order to draw correct inferences about rent generation.

Quota mobility and quota values: Influence on the structural development of dairy farming

The institutional arrangements governing quota mobility influence quota prices and the structural development of the dairy sector. This article considers milk quotas in a number of OECD countries where they are applied under different conditions and with various policy goals. Pressure to free quota markets and to increase quota mobility is inherent in a quota system in a market economy, unless very strict government rules are applied. This implies that quota rights are capitalized in quota prices, which increases the financial burden of new producers, among others. Improving quota mobility by organizing quota trade or leasing will speed up structural development. Empirical research tends to confirm economic theory about the factors which determine quota values. Larger and/or more efficient farms increase their share in milk production by trading or leasing.

The price of Milk Quota in England and Wales

Abstract In this paper prices for leasing milk quota in England and Wales are estimated using traditional and ‘modern’ microeconomic theory of firms’ costs. In both cases it is argued that the distinction between short‐run and long‐run is relevant in establishing quota prices. Estimates of marginal cost are derived by econometric methods and by direct use of observed costs, after which it is a straightforward exercise to obtain estimates of quota values at farm level and equilibrium quota prices for the industry. Results from the empirical analysis justify choice of the efficiency criterion, whereby quota is transferred from high‐cost to low‐cost producers, as a suitable basis for establishing a leasing price. Whilst higher milk prices are shown to have been the principal cause of increases in the nominal price of quota, reductions in input prices dominate when these increases are measured in real terms. As for choice of cost function, the use of constant marginal cost, associated with ‘modern’ microeconomic theory, provides some credible estimates.

Acreage Decisions under Marketing Quotas and Yield Uncertainty

AbstractA conceptual model examines how quotas and yield uncertainty affect acreage decisions. Production in excess of a quota can occur if the price for quota production is large relative to marginal costs. Increasing risk aversion increases expected production further if the risk of forfeiting quota revenue is given greater weight than avoiding production risk. Allowing quota carryover decreases production levels. Simulations indicate the most important factors determining expected production levels are (a) the existence of a carryover provision, (b) the price differential given to quota production relative to nonquota production, and (c) the level of marginal costs relative to the quota price.

Quota Leasing As a Competitive Strategy: A Story of Chicken Feed, Laying Hens, and Eggs

This paper investigates why, under supply control by a marketing board, production quota originally given to downstream producers may ultimately end up in the hands of the latters' upstream suppliers who will lease them back to their original owners. A link between the extent of leasing and the price of quota is established. Finally, a rationale is provided explaining why such leasing contracts contain tying and exclusivity clauses.

Quotas négociables, politique de compensation et réforme de la PAC

A politically acceptable alternative to price reductions is to limit the commitment of support to a given production level, thus containing support expenditure. The market and price mechanism applied to saleable or tradeable quotas not only allows for flexibility in distribution of the quota, allocating quota to those who receive most benefit from the high support prices, but also establishes, through the market price of the quotas, the capitalised value of the market support over and above the «free market» output price. In so doing, any purchaser of quotas correctly compensates the vendor for giving up the right to produce at supported prices. In addition, the capitalisation of the support value in the quota price leaves the revenue, net of quota values, at a similar level to the free market net revenues, thus encouraging the efficient use of real ressources. A potential extension involves the support authorities progressively reducing the level of support commitment and simultaneously providing the appropriate compensation to producers by buying in quota levels.