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Inattentive importers

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  • Dasgupta, Kunal
  • Mondria, Jordi

Abstract

Information frictions prevent importers from observing the price of a good in every market. In this paper, we seek to explain how the presence of such frictions shapes the flow of goods between countries. To this end, we introduce rationally inattentive importers in a multi-country Ricardian trade model. The amount of information importers process is endogenous and reacts to changes in observable trade costs. Unlike traditional trade costs, changes in information processing costs have non-monotonic and asymmetric effects on bilateral trade flows. The model generates a novel prediction regarding the relationship between information processing costs and concentration of imports that finds support in the data. We calibrate the model, perform counterfactuals and show quantitatively how the response of trade flows to exogenous trade shocks gets magnified under inattention.

Suggested Citation

  • Dasgupta, Kunal & Mondria, Jordi, 2018. "Inattentive importers," Journal of International Economics, Elsevier, vol. 112(C), pages 150-165.
    • Handle: RePEc:eee:inecon:v:112:y:2018:i:c:p:150-165
    DOI: 10.1016/j.jinteco.2018.03.002
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    More about this item

    Keywords

    Rational inattention; Information costs; Magnification effect;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • F10 - International Economics - - Trade - - - General
    • F19 - International Economics - - Trade - - - Other
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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