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Decisions and tradable production quota when yield is uncertain
Author(s) -
Hennessy David A.,
Wei Wei
Publication year - 2000
Publication title -
australian journal of agricultural and resource economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.683
H-Index - 49
eISSN - 1467-8489
pISSN - 1364-985X
DOI - 10.1111/1467-8489.00110
Subject(s) - production (economics) , economics , yield (engineering) , microeconomics , renting , randomness , mathematics , statistics , materials science , political science , law , metallurgy
This article analyses optimal decisions under regulation by tradable agricultural production/marketing quotas when production is stochastic. For risk‐neutral and risk‐averse producers the fraction of planned production that is covered by quota is separable from input decisions when yield randomness is additive. The role of quota in protecting against the risk of production shortfall is investigated. A producer is shown to benefit from being allowed to treat as one all tranches of production quota under his control. Production decisions are invariant to this amalgamation. But when production randomness is additive normal, the qualitative impact of amalgamation on quota positions depends upon whether the ratio of rental price to the price difference that is being protected exceeds one half.