EXPLAINING THE DISTRIBUTION OF QUOTA RENTS FROM US CHEESE IMPORTS

A theoretical model is outlined to illustrate how rents are generated from import quotas. The model is used to estimate rents from US cheese import quotas; rents are substantial. Relative rent capture by importers and exporters is explained by estimating an industrial organisation-type model. Unequal market power is important in explaining the distribution of rents between importers and exporters. Exporters tend to maintain price-cost margins and let importers capture a larger share as rent size increases.