Acreage Decisions under Marketing Quotas and Yield Uncertainty

A conceptual model examines how quotas and yield uncertainty affect acreage decisions. Production in excess of a quota can occur if the price for quota production is large relative to marginal costs. Increasing risk aversion increases expected production further if the risk of forfeiting quota revenue is given greater weight than avoiding production risk. Allowing quota carryover decreases production levels. Simulations indicate the most important factors determining expected production levels are (a) the existence of a carryover provision, (b) the price differential given to quota production relative to nonquota production, and (c) the level of marginal costs relative to the quota price.