SELLING IMPORT QUOTA LICENSES - THE UNITED-STATES CHEESE CASE

Recent discussions on U.S. trade policies suggest that import quotas s hould be auctioned to ensure the U.S. Treasury acquires the quota rent . However, studies estimating the potential benefits have ignored impo rtant details of import quota regimes and have assumed perfect competi tion and no exporter retaliation. We explore these three issues with a n application to the U.S. cheese import quota regime. We show that whe n features of the U.S. dairy quota regime and structure of the cheese processing sector are accounted for, likely quota rents and potential welfare consequences of selling import licenses change significantly. While quota license sales may raise Treasury receipts, they may also c ause a net welfare loss.