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The single-bid restriction on milk quota exchanges

Author

Listed:
  • Peter Bogetoft
  • Kurt Nielsen
  • Henrik Ballebye Olesen

Abstract

On the Danish milk quota exchange each producer can submit a single bid (a quantity and a price limit) only. We demonstrate that this restriction has several distorting effects. First, traders minimise the risk of foregoing profitable trade by submitting their average valuation rather than their marginal valuation of quota. Second, single bids cannot express full demand and supply curves. Therefore, not only the trade volume but also the allocation of quota may be sub-optimal. We evaluate the empirical importance of a single-bid restriction using data from the (multiple-bid) Ontario exchange. The misallocations identified are surprisingly low. This may be due to the character of milk production and the discrete nature of capacity adjustments. Copyright 2003, Oxford University Press.

Suggested Citation

  • 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.
  • Handle: RePEc:oup:erevae:v:30:y:2003:i:2:p:193-215
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    Cited by:

    1. Brümmer, Bernhard & Loy, Jens-Peter & Requate, Till, 2010. "Auction Experiments and Simulations of Milk Quota Exchanges," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61304, Agricultural and Applied Economics Association.
    2. Hennessy, Thia & Lapple, Doris & Shalloo, Laurence & Wallace, Michael, 2012. "An economic analysis of the Irish milk quota exchange scheme," International Journal of Agricultural Management, Institute of Agricultural Management;International Farm Management Association, vol. 1(3), March.
    3. Sauer, Johannes, 2008. "Quota Deregulation and Organic versus Conventional Milk – A Bayesian Distance Function Approach," 82nd Annual Conference, March 31 - April 2, 2008, Royal Agricultural College, Cirencester, UK 36869, Agricultural Economics Society.
    4. Johannes Sauer, 2010. "Deregulation and dairy production systems: a Bayesian distance function approach," Journal of Productivity Analysis, Springer, vol. 34(3), pages 213-237, December.
    5. Peter Bogetoft & Kurt Nielsen, 2010. "Efficient and Confidential Reallocation of Contracts: How The Danish Sugar Industry Adapted to The New Sugar Regime," MSAP Working Paper Series 07_2010, University of Copenhagen, Department of Food and Resource Economics.

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