American Agricultural Economics Association Conference Paper: "Policy Risk: An Empirical Analysis of a Market for a Government-Created Asset" UC Davis co-authors: Daniel A. Sumner, professor and director of the Agricultural Issues Center, and Norbert Wilson, doctoral student Date and time: Monday, Aug. 3, 1:30 to 3 p.m. California's $800 million dairy quota has provided an average annual return of about 23 percent over 27 years, according to the ongoing research of Sumner and Wilson. That's about 8 percentage points more than the Standard & Poor's 500 and about 15 percentage points more than a 10-year Treasury bill. But unlike the stock market, the returns to quota have mostly been from monthly receipts, not capital gains. The researchers say the returns have been relatively stable on a year-to-year basis and have been a good source of diversification for California dairy farmers. Sumner and Wilson reason that, because the quota is an asset created by government policy, its value is vulnerable to policy changes. "Dairy farmers are very much aware of that vulnerability, so they demand a high rate of return before they'll invest in it," Sumner says. In further research that includes interviews with farmers, Sumner and Wilson are exploring the political and economic factors that led to the Gonsalves Milk Pooling Act of 1967 and have influenced the evolution of the quota program. The program, which distributes pooled revenue from milk sales to about 2,000 participating dairies, is limited to active dairy farms, and it restricts how often quota can be bought and sold.