Quality uncertainty and intermediation in international trade

Kunal Dasgupta and Jordi Mondria ()

European Economic Review, 2018, vol. 104, issue C, 68-91

Abstract: 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 their products. Quality is not fully observed by foreign consumers initially but known once the product is consumed. We show that this lack of information 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. In the process, we uncover a positive externality of using intermediaries. The model generates a novel prediction about price dynamics that finds support in the data.

Keywords: Intermediaries; Quality; Screening; Incomplete information (search for similar items in EconPapers)
JEL-codes: D83 F10 F19 L15 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:104:y:2018:i:c:p:68-91

DOI: 10.1016/j.euroecorev.2018.02.002

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