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Explaining Variations in the Price of Dairy Quota: Flow Returns, Liquidity, Quota Characteristics, and Policy Risk

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  • Wilson, Norbert L.W.
  • Sumner, Daniel A.

Abstract

An econometric model based on the net present value model is used to examine factors that drive the variation of California dairy quota values over a 29-year period. The results suggest the price of quota is based on expected returns, variations in quota owner liquidity, and the risk of policy default. The dominant influence on the variation of the quota price was the historical variation in monthly flow of net benefits from owning quota. This analysis confirms that the rate of return to quota rises in periods of policy uncertainty.

Suggested Citation

  • Wilson, Norbert L.W. & Sumner, Daniel A., 2004. "Explaining Variations in the Price of Dairy Quota: Flow Returns, Liquidity, Quota Characteristics, and Policy Risk," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(1), pages 1-16, April.
    • Handle: RePEc:ags:jlaare:31145
    DOI: 10.22004/ag.econ.31145
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    5. Peter L. Arcus, 1978. "THE VALUES OF MILK QUOTAS IN BRITISH COLUMBIA: An Economic Analysis," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 26(2), pages 62-71, July.
    6. Veeman, Michele M. & Dong, Xiao-Yuan, 1995. "The Economics of a Regulated Dairy Market: An Empirical Analysis of Factors Determining the Values of Fluid Milk Quota," Staff Paper Series 24083, University of Alberta, Department of Resource Economics and Environmental Sociology.
    7. Fontnouvelle, P. de & Lence, Sergio H., 2002. "Transaction Costs and the Present Value," Staff General Research Papers Archive 5263, Iowa State University, Department of Economics.
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    Cited by:

    1. Rozowski, Casey & Vukina, Tomislav, . "Production Quotas, Competition and Farm Values: A Chronicle of the Swine Industry in North Carolina," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 49(2).
    2. Newell, Richard G. & Papps, Kerry L. & Sanchirico, James N., 2005. "Asset Pricing in Created Markets for Fishing Quotas," Discussion Papers 10639, Resources for the Future.
    3. Lotte Yanore & Jaap Sok & Alfons Oude Lansink, 2024. "Do Dutch farmers invest in expansion despite increased policy uncertainty? A participatory Bayesian network approach," Agribusiness, John Wiley & Sons, Ltd., vol. 40(1), pages 93-115, January.
    4. Daniel A. Sumner & Norbert L. W. Wilson, 2005. "Capitalization of Farm Policy Benefits and the Rate of Return to Policy-Created Assets: Evidence from California Dairy Quota," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 27(2), pages 245-258.
    5. Rimsaite, Renata & Fisher-Vanden, Karen A. & Olmstead, Sheila M., 2016. "Price Efficiency in U.S. Water Rights Markets," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 243124, Agricultural and Applied Economics Association.
    6. Richard G. Newell & Kerry L. Papps & James N. Sanchirico, 2007. "Asset Pricing in Created Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(2), pages 259-272.
    7. Blandford, David & Boisvert, Richard N., 2004. "U.S. Policy for Agricultural Adjustment," IAPRAP\IATRC Summer Symposium, Adjusting to Domestic and International Agricultural Reform in Industrial Countries, June 6-7, 2004, Philadelphia, PA, 15771, International Agricultural Policy Reform and Adjustment Project (IAPRAP).
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