Selling Import Quota Licenses: The U.S. Cheese Case

Abstract

Abstract Recent discussions on U.S. trade policies suggest that import quotas should be auctioned to ensure the U.S. Treasury acquires the quota rent. However, studies estimating the potential benefits have ignored important details of import quota regimes and have assumed perfect competition and no exporter retaliation. We explore these three issues with an application to the U.S. cheese import quota regime. We show that when 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 cause a net welfare loss.

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