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Single Bid Restriction in Milk Quota Exchanges - Comparing the Danish and the Ontario Exchanges

Author

Listed:
  • Bogetoft, Peter
  • Jensen, Peter Max Friis
  • Nielsen, Kurt
  • Olesen, Henrik Ballebye
  • Olsen, Rene H.

Abstract

This paper analyzes the design of the Danish milk quota exchange. We focus on the restriction that each producer can only submit a single bid (a quantity and a price limit). We argue that this restriction creates inefficiencies for two reasons. First, a single bid cannot express a buyer's downward sloping demand curve (the aggregation effect). Second, the buyers minimize the risk of foregoing profitable trade by submitting their average valuation rather than their marginal valuation of quota (the uncertainty effect). We use data from the (multiple bids) Ontario milk quota exchange, to evaluate the empirical impact of a single bid restriction.

Suggested Citation

  • Bogetoft, Peter & Jensen, Peter Max Friis & Nielsen, Kurt & Olesen, Henrik Ballebye & Olsen, Rene H., 2002. "Single Bid Restriction in Milk Quota Exchanges - Comparing the Danish and the Ontario Exchanges," Unit of Economics Working papers 24181, Royal Veterinary and Agricultural University, Food and Resource Economic Institute.
  • Handle: RePEc:ags:rvaewp:24181
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    File URL: http://purl.umn.edu/24181
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    References listed on IDEAS

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    1. Rucker, Randal R & Thurman, Walter N & Sumner, Daniel A, 1995. "Restricting the Market for Quota: An Analysis of Tobacco Production Rights with Corroboration from Congressional Testimony," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 142-175, February.
    2. Nautz, D., 1995. "Optimal bidding in multi-unit auctions with many bidders," Economics Letters, Elsevier, vol. 48(3-4), pages 301-306, June.
    3. Ann C. Ewasechko & Theodore M. Horbulyk, 1995. "Interprovincial Reallocation of Market Sharing Quota for Industrial Milk," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 43(2), pages 191-202, July.
    4. Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-286, July.
    5. Boots, Maroeska & Oude Lansink, Alfons & Peerlings, Jack, 1997. "Efficiency Loss Due to Distortions in Dutch Milk Quota Trade," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 24(1), pages 31-46.
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    Citations

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    Cited by:

    1. Maurice Doyon & Lota Dabio Tamini & Virginie Simard & Kent Messer & Harry M. Kaiser, 2006. "L'économie expérimentale pour l'analyse de modifications au système centralisé de vente du quota laitier au Québec," CIRANO Working Papers 2006s-23, CIRANO.
    2. 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, September.

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