Quality Uncertainty and Intermediation in International Trade

Kunal Dasgupta and Jordi Mondria ()

Working Papers from University of Toronto, Department of Economics

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 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.

Keywords: Intermediaries; quality; uncertainty; screening; asymmetric information (search for similar items in EconPapers)
JEL-codes: D83 F10 F19 L15 (search for similar items in EconPapers)
Pages: Unknown pages
Date: 2012-08-01
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Journal Article: Quality uncertainty and intermediation in international trade (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:tor:tecipa:tecipa-462

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