Output regulation of multiproduct firms : an application of the quadratic profit function

Abstract

The paper employs the symmetric normalised quadratic (SNQ) profit function presented by Kohli (1993) to estimate for interaction effects between restricted and unrestricted outputs in firm production. Based on data for individual firms, the profit function is employed for revealing the spillover effects between regulated and unregulated outputs, the elasticities of intensity, and firms‘ willingness to pay for additional production quota in a quota regulated industry. The result indicates that external effects prevail, which means that in the case of quota shortage firms will substitute towards increased harvesting of unregulated outputs, this action however increases the production costs for the average firm.