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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 which have estimated the potential benefits have ignored important details of import quota regimes, assumed perfect competition and no retaliation from exporters. This paper aims to deal with these three criticisms with an application to the U.S. import quota regime for cheese. The results show that in oligopolistic settings, the government could maximize potential rents from import restrictions by auctioning off an optimal quota. However, preventing retaliation reduces Treasury gains. Further, license sales have distributional implications for U.S. cheese processing firms and consumers. Depending on the source of rent dissipation, selling cheese quota licenses may result in a net welfare loss.


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