Dynamic structure of production under a quota: The case of milk production in the Federal Republic of Germany

Abstract

A dynamic multiple output, multiple input model is estimated within the adjustment cost framework to analyse the economic behaviour of dairy producers in the Federal Republic of Germany during the first half of the 1980s. The results suggest significant behaviour given the introduction of the production quota. The changes in producers' responses were driven by changes in variable input use and the evolution from a symmetric to asymmetric adjustment of quasi-fixed factors. In addition, German dairy farmers are found to exhibit considerable excess capacity in production.

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