Journal article

Publication year: 2016

Pages: 135-151

Journal: Economic Modelling

Volume number: 55

ISSN: 0264-9993

eISSN: 1873-6122

DOI Link: https://doi.org/10.1016/j.econmod.2016.02.006

Publisher: Elsevier

Abstract: 
In 2015 the EU terminated its milk quota regime that was part of the Common Agricultural Policy for three decades. Against this background our paper analyses how a tradable/non-tradable production quota influences firm entry and exit in the agricultural industry. To this end we develop a dynamic stochastic equilibrium framework considering that a release of production capacity by exiting firms affects the investment options for entrants. Firms' investment and exit decisions depend on future output and quota prices, which in turn will be affected by the evolution of industry structures. Contrary to static models, we find that a quota system does not necessarily reduce the speed of adjustment within the industry since a tradable quota increases the liquidation value and provides an incentive for inefficient firms to cease production. (c) 2016 Elsevier B.V. All rights reserved.

Harvard Citation style: Kersting, S., Huettel, S. and Odening, M. (2016) Industry dynamics under production constraints - The case of the EU dairy sector, Economic Modelling, 55, pp. 135-151. https://doi.org/10.1016/j.econmod.2016.02.006

APA Citation style: Kersting, S., Huettel, S., & Odening, M. (2016). Industry dynamics under production constraints - The case of the EU dairy sector. Economic Modelling. 55, 135-151. https://doi.org/10.1016/j.econmod.2016.02.006