Middlemen Margins and Globalization

Pranab Bardhan · Dilip Mookherjee B · Masatoshi Tsumagari

39 citations0/0 files storedAmerican Economic Journal Microeconomics

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Global trade and economics Merger and Competition Analysis Economic theories and models

Abstract

We study a competitive theory of middlemen with brand-name reputations necessary to overcome product quality moral hazard problems. Agents with heterogeneous abilities sort into different sectors and occupations. Middleman margins do not equalize across sectors if production of different goods are differentially prone to moral hazard, generating endogenous mobility barriers. We embed the model in a setting of North-South trade, and explore the distributive implications of trade liberalization. With large intersectoral moral hazard differences, results similar to those of Ricardo-Viner specific-factor models obtain, whereby southern inequality increases. Otherwise, opposite (i.e., Stolper-Samuelson) results obtain. (JEL D82, D63, F12, F13, L15)

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References

1975Clausulas comparativas do portugues 1991Managing Brand Equity 1978On the Size Distribution of Business Firms 1993Occupational Choice and the Process of Development 2008Trading Tasks: A Simple Theory of Offshoring 1998Integration of Trade and Disintegration of Production in the Global Economy 1993The O-Ring Theory of Economic Development 2008Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector *

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