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Risk and Cost Sharing in Firm-to-Firm Trade

Author

Listed:
  • Cristina Herghelegiu

    (ECARES, Université Libre de Bruxelles, B)

  • Evgenii Monastyrenko

    (Department of Economics and Management, Université du Luxembourg)

Abstract

Firms are exposed to important risks and costs when trading across borders. Based on a set of standardized rules known as Incoterms, firms decide ex ante how to delimit their responsibilities throughout the shipping process to reduce the inherent contractual frictions. This paper investigates how sellers and buyers share risks and costs in international trade transactions depending on the characteristics of the exchanged product. We rely on a highly detailed dataset involving all Russian exporters and their foreign customers during 2012-2015. Our results suggest that buyers are more likely to bear responsibilities for goods that are (a) more distant from final use and (b) less tailored to their specific needs. These results are reinforced for products that constitute important inputs for buyers but reversed when there is a positive difference between the buyer and the seller size.

Suggested Citation

  • Cristina Herghelegiu & Evgenii Monastyrenko, 2020. "Risk and Cost Sharing in Firm-to-Firm Trade," DEM Discussion Paper Series 20-24, Department of Economics at the University of Luxembourg.
    • Handle: RePEc:luc:wpaper:20-24
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    More about this item

    Keywords

    Risks; Costs; Incoterms; Firms Exports.;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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