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Quality Uncertainty and Intermediation in International Trade

Listed author(s):
  • Kunal Dasgupta
  • Jordi Mondria

Uncertainty about product quality is endemic in international trade. We develop a dynamic, two country model where home producers differ in terms of the quality of the products they sell. This quality is imperfectly observed by foreign consumers initially but known once the product is consumed. We show that this uncertainty generates an information cost of exporting, over and above the usual fixed costs used in standard heterogeneous firm models. We use the model to examine the role played by intermediaries in alleviating quality uncertainty. An intermediation technology involving higher marginal cost but lower fixed cost arises endogenously in our model. We analyze the sorting of exporters into different exporting modes. In the process, we uncover a novel externality of using intermediaries. We go on to study how the equilibrium depends on the degree of product heterogeneity, the level of information and the measure of available intermediaries.

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File URL: https://www.economics.utoronto.ca/public/workingPapers/tecipa-462.pdf
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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-462.

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Length: Unknown pages
Date of creation: 01 Aug 2012
Handle: RePEc:tor:tecipa:tecipa-462
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  1. Thomas Chaney, 2014. "The Network Structure of International Trade," American Economic Review, American Economic Association, vol. 104(11), pages 3600-3634, November.
  2. Dimitra Petropoulou, 2007. "Information Costs, Networks and Intermediation in International Trade," Economics Series Working Papers 370, University of Oxford, Department of Economics.
  3. Pablo Fajgelbaum & Gene M. Grossman & Elhanan Helpman, 2011. "Income Distribution, Product Quality, and International Trade," Journal of Political Economy, University of Chicago Press, vol. 119(4), pages 721-765.
  4. Andrew B. BERNARD & Emily J. BLANCHARD & Ilke VAN BEVEREN & Hylke Y. VANDENBUSSCHE, 2012. "Carry-Along Trade," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2012020, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  5. Costas Arkolakis & Marc-Andreas Muendler, 2010. "The Extensive Margin of Exporting Products: A Firm-level Analysis," CESifo Working Paper Series 3309, CESifo Group Munich.
  6. Treb Allen, 2014. "Information Frictions in Trade," Econometrica, Econometric Society, vol. 82, pages 2041-2083, November.
  7. Andrew B. Bernard & Marco Grazzi & Chiara Tomasi, 2010. "Intermediaries in International Trade: direct versus indirect modes of export," LEM Papers Series 2010/19, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  8. Gehrig, Thomas, 1993. "Intermediation in Search Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 2(1), pages 97-120, Spring.
  9. Daniel Paravisini & Veronica Rappoport & Philipp Schnabl & Daniel Wolfenzon, 2015. "Dissecting the Effect of Credit Supply on Trade: Evidence from Matched Credit-Export Data," Review of Economic Studies, Oxford University Press, vol. 82(1), pages 333-359.
  10. David Hummels & Alexandre Skiba, 2004. "Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1384-1402, December.
  11. Costas Arkolakis, 2010. "Market Penetration Costs and the New Consumers Margin in International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1151-1199.
  12. Gabriel Felbermayr & Benjamin Jung, 2011. "Trade Intermediation and the Organization of Exporters," Review of International Economics, Wiley Blackwell, vol. 19(4), pages 634-648, 09.
  13. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
  14. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
  15. Gabriel Felbermayr & Benjamin Jung, 2011. "Trade Intermediation and the Organization of Exporters," Review of International Economics, Wiley Blackwell, vol. 19(4), pages 634-648, 09.
  16. Pol Antràs & Arnaud Costinot, 2011. "Intermediated Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1319-1374.
  17. Bernardo S. Blum & Sebastian Claro & Ignatius Horstmann, 2010. "Facts and Figures on Intermediated Trade," American Economic Review, American Economic Association, vol. 100(2), pages 419-423, May.
  18. Macchiavello, Rocco, 2010. "Development Uncorked: Reputation Acquisition in the New Market for Chilean Wines in the UK," CEPR Discussion Papers 7698, C.E.P.R. Discussion Papers.
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