Information Costs, Networks and Intermediation in International Trade

Dimitra Petropoulou ()

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: This paper presents a pairwise matching model with two-sided information asymmetry to analyse the impact of information costs on endogenous network building and matching by information intermediaries. The framework innovates by examining the role of information costs on incentives for trade intermediation, thereby endogenising the pattern of direct and indirect trade. Intermediation is shown to unambiguously raise expected trade volume and social welfare by expanding the set of matching technologies available to traders. Moreover, convexity in network-building costs is necessary for both direct and indirect trade to arise in equilibrium while the pattern of trade is shown to depend on the level of information costs as well as the relative effectiveness of direct and indirect matching technologies with changing information costs. The model sheds light on the relationship between information frictions and aggregate trade volume, which may be non-monotonic as a result of conflicting effects of information costs on the incentives for direct and indirect trade.

Keywords: International Trade; Pairwise Matching; Information Cost; Intermediation; Networks (search for similar items in EconPapers)
JEL-codes: C78 D43 D82 D83 F10 L10 (search for similar items in EconPapers)
Date: 2008-02
New Economics Papers: this item is included in nep-int and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (66)

Downloads: (external link)
https://cep.lse.ac.uk/pubs/download/dp0848.pdf (application/pdf)

Related works:
Working Paper: Information costs, networks and intermediation in international trade (2011)
Working Paper: Information costs, networks and intermediation in international trade (2008)
Working Paper: Information Costs, Networks and Intermediation in International Trade (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:cep:cepdps:dp0848

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