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.