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Capacity Utilization under Regulatory Constraints


This paper presents a methodology for predicting the effect of quota-type regulatory constraints on capacity utilization for a multiproduct profit-maximizing firm. The approach builds on recent advances in the use of virtual prices to model the effects of rationing. This allows the effects of regulatory constraints to be examined ex ante. The methodology is illustrated through a case study of the imposition of output quotas in an open-access marine fishing industry on the Pacific Coast of the United States. The results suggest that, for certain species, output quotas can cause strong disinvestment incentives.

Source: Segerson, K. and D. Squires. 1993. “Capacity utilization under regulatory constraints.” Review of Economics and Statistics, 75(1): 76-85.

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