Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
In 2015 the EU terminated its milk quota regime that was part of the Common Agricultural Policy for three decades. Against this background our paper analyses how a tradable/non-tradable production quota influences firm entry and exit in the agricultural industry. To this end we develop a dynamic stochastic equilibrium framework considering that a release of production capacity by exiting firms affects the investment options for entrants. Firms' investment and exit decisions depend on future output and quota prices, which in turn will be affected by the evolution of industry structures. Contrary to static models, we find that a quota system does not necessarily reduce the speed of adjustment within the industry since a tradable quota increases the liquidation value and provides an incentive for inefficient firms to cease production.