An Experimental Analysis of Modifications to the Centralized Milk Quota Exchange System in Quebec

To purchase or authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1744-7976.2008.00130.x Byline: Maurice Doyon (1), Virginie Simard (2), Kent D. Messer (3), Lota D. Tamini (4), Harry M. Kaiser (5) Abstract: Using experimental economics, this paper tests the potential impacts of modifying the centralized quota exchange system in Quebec with the intent of decreasing the quota price while minimizing negative impacts on auction effectiveness. Two separate treatments are applied to a uniform price auction similar to that employed in Quebec. The first treatment is an exclusion (5% or 15%) of the highest buyer bids and seller offers. The second is a tax (2% or 10%) on all units offered for sale that remain unsold. Various combinations of the two treatments are also tested. The results suggest that exclusion of the highest bids and offers can decrease the price of the quota and that a 15% exclusion rate is more effective than a 5% rate. The tax alone has little impact on quota price. The combination of the two treatments generates a more marked reduction in both the number of exchanges and the price of the quota than when the tax or the exclusion is applied individually. However, the combination of treatments results in a greater loss of economic efficiency. In all cases, relatively small market price reductions are realized at the expense of substantial losses in economic efficiency. La presente etude teste de maniere experimentale la capacite d'une modification au systeme centralise de vente du quota a faire diminuer le prix du quota laitier au Quebec tout en minimisant les impacts negatifs des changements sur l'efficacite de l'enchere. Cette modification consiste a appliquer deux traitements sur l'enchere de prix uniforme ou s'echange le quota. Le premier traitement consiste en une exclusion (5% ou 15%) des mises les plus elevees des acheteurs et des vendeurs. Le second traitement est une taxe (2% ou 10%) appliquee aux unites que les vendeurs mettent en marche et ne reussissent pas a vendre. Differentes combinaisons de ces deux traitements sont egalement testees. Les donnees generees permettent de conclure que le mecanisme d'exclusion des mises les plus elevees permet de faire diminuer le prix du quota, l'exclusion de 15%etant plus efficace que celle de 5%. Pour sa part, la taxe seule a peu d'impact sur le prix du quota tandis que la combinaison des deux traitements entraine une diminution du nombre de transactions et du prix du quota plus marquee que lorsque les traitements de taxe et d'exclusion sont appliques individuellement. Cela a comme corollaire d'entrainer une perte d'efficaciteeconomique plus importante. Dans tous les cas, des baisses de prix de marche relativement modestes sont realisees au cout d'importantes pertes d'efficaciteeconomique. Author Affiliation: (1)Professor, Department of Agricultural Economics and Consumer Science, 4310-F, Pavillon Paul-Comtois, Laval University, Quebec, Quebec G1K 7P4 (corresponding author: phone: 418-656-2131, ext: 4546; fax: 418-656-7821; e-mail:Maurice.doyon@eac.ulaval.ca). (2)Analyst at La Financiere Agricole, 1026 chemin St-Joseph, St-Nicolas, Quebec G7A 2A3 (phone: 418-831-8445; e-mail:simardvirginie@hotmail.com). (3)Assistant Professor, Food & Resource Economics, 266 Townsead Hall, University of Delaware, Newark, DE 19716 (phone: 302-831-1316; e-mail:messer@udel.edu). (4)Senior Researcher, Institut de Recherche et de Developpement en Agroenvironnement (IRDA), 2700, rue Einstein Quebec, Quebec, G1P 3W8 (phone: 418-646-7826; e-mail:lota-d.tamini@irda.qc.ca). (5)Professor, Cornell University, Department of Applied Economics and Management, 350 Warren Hall, Ithaca, NY 14850 (phone: 607-255-1598; e-mail:hmk2@Cornell.edu).