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Uncertainty and Production Quotas

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  • R. W. FRASER

Abstract

This paper examines the role of uncertainty in determining the impact of production quotas on a risk‐neutral producer's behaviour In the context of production uncertainty the introduction of a quota will lead to a reduction in planned production. Moreover, in a situation of an established quota, the level of planned production relative to the quota depends both on the size of the profit margin on quota production and on the extent of production uncertainty. Apart from these direct influences, uncertainty influences planned production indirectly in a situation where over‐quota production can be sold in an uncertain export market. The direction of this influence depends on the relationship between the producer's uncertainties of price and production. It is argued, therefore, that the welfare assessment of the impact of production quotas must incorporate the role of uncertainty.

Suggested Citation

  • R. W. Fraser, 1986. "Uncertainty and Production Quotas," The Economic Record, The Economic Society of Australia, vol. 62(3), pages 338-342, September.
    • Handle: RePEc:bla:ecorec:v:62:y:1986:i:3:p:338-342
    DOI: 10.1111/j.1475-4932.1986.tb02692.x
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    References listed on IDEAS

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    1. R. M. Parish, 1962. "The Costs Of Protecting The Dairying Industry," The Economic Record, The Economic Society of Australia, vol. 38(82), pages 167-182, June.
    2. Ravi Kanbur, S. M., 1982. "Increases in risk with kinked payoff functions," Journal of Economic Theory, Elsevier, vol. 27(1), pages 219-228, June.
    3. Fraser, R W & Van Noorden, R J, 1983. "Extraction of an Exhaustible Resource: The Effects on Investment of Several Parameters Being Subject to Uncertainty," The Economic Record, The Economic Society of Australia, vol. 59(167), pages 365-374, December.
    4. R. W. Fraser & R. J. Van Noorden, 1983. "Extraction of an Exhaustible Resource: The Effects on Investment of Several Parameters Being Subject to Uncertainty," The Economic Record, The Economic Society of Australia, vol. 59(4), pages 365-374, December.
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    Cited by:

    1. Hennessy, David A. & Wei, Wei, 2000. "Decisions and tradable production quota when yield is uncertain," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 44(2), pages 1-15.
    2. Lindner, Robert K., 1990. "Something Fishy in the ITQ Market," 1990 Conference (34th), February 13-15, 1990, Brisbane, Australia 145199, Australian Agricultural and Resource Economics Society.
    3. Fraser, Rob W., 1995. "A Note: A Clarification Of The Role Of Yield Uncertainty In Influencing Over-Quota Production," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 39(2), pages 1-5, August.
    4. Lindner, R.K., 1990. "Tradeable Discharge Permits as Output Quotas," Discussion Papers 232308, University of Western Australia, School of Agricultural and Resource Economics.
    5. Ben Groom & Phoebe Koundouri & Celine Nauges & Alban Thomas, 2003. "Irrigation water management under risk: An application to Cyprus," DEOS Working Papers 0306, Athens University of Economics and Business.

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