Quality Adjustment under Quotas in a Multiproduct Model with Joint Production.

This study examines the roles of scale effects and economies and diseconomies of scope in determining the direction and extent of quality upgrading in a quota-constrained market. A model of joint production of two outputs is developed. It is shown that the quality upgrading phenomena in conventional models may be partially or completely countered by scale as well as scope effects. In particular, the analysis develops the conditions under which the presence of scope effects can potentially result in a shift of the composition of the export bundle in favor of the low-quality product within a quota category. Copyright 1991 by The editors of the Scandinavian Journal of Economics.