Contracting and the Division of the Gains from Trade

Swati Dhingra and Andrew Bernard

No 298, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: Abstract This paper examines the microstructure of import markets and the division of the gains from trade among consumers, importers and exporters. When exporters and importers transact through anonymous markets, double marginalization and business stealing among competing importers lead to lower profits. Trading parties can overcome these inefficiencies by investing in richer contractual arrangements such as bilateral contracts that eliminate double marginalization through fixed fees and joint contracts that internalize business stealing by maximizing joint profits of the exporter and its competing importers. Introducing these contractual choices into a trade model with heterogeneous exporters and importers, we show that trade liberalization increases the incentive to engage in joint contracts, thus raising the profits of exporters and importers at the expense of consumer welfare. We examine the implications of the model for prices, quantities and exporter-importer matches in Colombian import markets before and after the US-Colombia free trade agreement. US exporters that started to enjoy duty-free access were more likely to increase their average import price, decrease their quantity exported and reduce the number of import partners.

Date: 2015
New Economics Papers: this item is included in nep-cta and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2015/paper_298.pdf (application/pdf)

Related works:
Working Paper: Contracting and the Division of the Gains from Trade (2015)
Working Paper: Contracting and the Division of the Gains from Trade (2015)
Working Paper: Contracting and the division of the gains from trade (2015)
Working Paper: Contracting and the Division of the Gains from Trade (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed015:298

Access Statistics for this paper

More papers in 2015 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().