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Auction Experiments and Simulations of Milk Quota Exchanges

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  • Brummer, Bernhard
  • Loy, Jens-Peter
  • Requate, Till

Abstract

Since 2000 Germany has introduced a fairly unique market mechanism to trade milk quotas between dairy farms. The two major features are: (1) a quasi auctioning system that produces excess demands which are covered by state reserves free of charge and (2) a price band that is used to exclude highest bids. For both features an experimental design is developed to study the impact in reference to a regular seller’s sealed bid double auction. Results show that both treatments lead to significant misallocations. These are due to the direct impact of regulations and due to an imperfect adjustment of bidding functions. The major goal of the market design to reduce quota prices is reached, however, at significant trade losses.

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Bibliographic Info

Paper provided by European Association of Agricultural Economists in its series 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland with number 114377.

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Date of creation: 2011
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Handle: RePEc:ags:eaae11:114377

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Keywords: Livestock Production/Industries;

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  1. Nautz, D., 1995. "Optimal bidding in multi-unit auctions with many bidders," Economics Letters, Elsevier, vol. 48(3-4), pages 301-306, June.
  2. Peter Bogetoft & Kurt Nielsen & Henrik Ballebye Olesen, 2003. "The single-bid restriction on milk quota exchanges," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 30(2), pages 193-215, June.
  3. Satterthwaite, Mark A & Williams, Steven R, 1989. "The Rate of Convergence to Efficiency in the Buyer's Bid Double Auction as the Market Becomes Large," Review of Economic Studies, Wiley Blackwell, vol. 56(4), pages 477-98, October.
  4. Nautz, D. & Wolfstetter, E., 1997. "Bid shading and risk aversion in multi-unit auctions with many bidders," Economics Letters, Elsevier, vol. 56(2), pages 195-200, October.
  5. Martin Shubik, 1977. "A Theory of Money and Financial Institutions. Part 22. A Price-Quantity Buy-Sell Market with and without Contingent Bids," Cowles Foundation Discussion Papers 455, Cowles Foundation for Research in Economics, Yale University.
  6. Maurice Doyon & Virginie Simard & Kent D. Messer & Lota D. Tamini & Harry M. Kaiser, 2008. "An Experimental Analysis of Modifications to the Centralized Milk Quota Exchange System in Quebec," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 56(3), pages 295-312, 09.
  7. Plott, Charles R, 1982. "Industrial Organization Theory and Experimental Economics," Journal of Economic Literature, American Economic Association, vol. 20(4), pages 1485-1527, December.
  8. McAfee, R. Preston, 1992. "A dominant strategy double auction," Journal of Economic Theory, Elsevier, vol. 56(2), pages 434-450, April.
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