Decisions and Tradable Production Quota When Yield is Uncertain

Posted: 11 Sep 2000

See all articles by David A. Hennessy

David A. Hennessy

Iowa State University - Department of Economics

Wei Wei

American Express Company

Abstract

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.

JEL Classification: Q12

Suggested Citation

Hennessy, David A. and Wei, Wei, Decisions and Tradable Production Quota When Yield is Uncertain. Available at SSRN: https://ssrn.com/abstract=236020

David A. Hennessy (Contact Author)

Iowa State University - Department of Economics ( email )

260 Heady Hall
Ames, IA 50011
United States
515-294-6171 (Phone)

Wei Wei

American Express Company

Phoenix, AZ 85021
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
400
PlumX Metrics