Yield uncertainty and milk supply response in two-tier price systems
In two-tier price systems, yield uncertainty creates incentives to
overproduce quantity-restricted outputs even when prices for surplus output are
very low. These incentives arise from precautionary motives against expected
losses from quota shortfalls. Using an approach augmented for multiple input
applications, the likelihood of excess production and the relative importance of
price changes in different markets are estimated for Icelandic dairy farms. The
results indicate that the average farm plans to exceed its quota, and price changes
in the surplus milk market are approximately three times more effective in
generating supply response than price changes in the quota milk market.
overproduce quantity-restricted outputs even when prices for surplus output are
very low. These incentives arise from precautionary motives against expected
losses from quota shortfalls. Using an approach augmented for multiple input
applications, the likelihood of excess production and the relative importance of
price changes in different markets are estimated for Icelandic dairy farms. The
results indicate that the average farm plans to exceed its quota, and price changes
in the surplus milk market are approximately three times more effective in
generating supply response than price changes in the quota milk market.
Publisert i Journal of Agricultural and Applied Economics, 2017
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