On the Deadweight Cost of Production Requirements for Geographically Differentiated Agricultural Products

Abstract

Abstract This article investigates the welfare effects of alternate producer collusion schemes in a context where collusion is authorized in order to cover fixed costs. Using a linear equilibrium displacement model, we find evidence that, when the producer group is allowed to control quota levels, an input quota policy entails a smaller absolute deadweight loss than an output quota policy. This finding suggests that if producer groups are allowed to resort to production‐distorting instruments to limit output, they will make production choices that are less costly for society than if they had been allowed to directly control output levels.

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