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Middlemen Margins and Globalization

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  • Pranab Bardhan
  • Dilip Mookherjee
  • Masatoshi Tsumagari

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.

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  • Pranab Bardhan & Dilip Mookherjee & Masatoshi Tsumagari, 2013. "Middlemen Margins and Globalization," American Economic Journal: Microeconomics, American Economic Association, vol. 5(4), pages 81-119, November.
    • Handle: RePEc:aea:aejmic:v:5:y:2013:i:4:p:81-119
    Note: DOI: 10.1257/mic.5.4.81
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    2. Macchiavello, Rocco & Miquel-Florensa, Josepa, 2019. "Buyer-Driven Upgrading in GVCs: The Sustainable Quality Program in Colombia," CEPR Discussion Papers 13935, C.E.P.R. Discussion Papers.
    3. David Atkin & Amit K. Khandelwal, 2020. "How Distortions Alter the Impacts of International Trade in Developing Countries," Annual Review of Economics, Annual Reviews, vol. 12(1), pages 213-238, August.
    4. Horst Raff & Nicolas Schmitt, 2016. "Manufacturers and retailers in the global economy," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 49(2), pages 685-706, May.
    5. Gary Biglaiser & Fei Li & Charles Murry & Yiyi Zhou, 2020. "Intermediaries and product quality in used car markets," RAND Journal of Economics, RAND Corporation, vol. 51(3), pages 905-933, September.
    6. Nancy Chau & Hideaki Goto & Ravi Kanbur, 2016. "Middlemen, fair traders, and poverty," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 14(1), pages 81-108, March.
    7. Donaldson, Dave & Atkin, David, 2015. "Who?s Getting Globalized? The Size and Implications of Intra-national Trade Costs," CEPR Discussion Papers 10759, C.E.P.R. Discussion Papers.
    8. Sandip Mitra & Dilip Mookherjee & Maximo Torero & Sujata Visaria, 2013. "Asymmetric Information and Middleman Margins: An Experiment with West Bengal Potato Farmers," Working Papers id:5545, eSocialSciences.
    9. Swati Dhingra & Silvana Tenreyro, 2020. "The rise of agribusiness and the distributional consequences of policies on intermediated trade," CEP Discussion Papers dp1677, Centre for Economic Performance, LSE.
    10. Marianna Belloc & Samuel Bowles, 2009. "International Trade, Factor Mobility and the Persistence of Cultural-Institutional Diversity," UMASS Amherst Economics Working Papers 2009-08, University of Massachusetts Amherst, Department of Economics.
    11. Parisa Kamali, 2019. "Exporting Through Intermediaries: Impact on Export Dynamics and Welfare," IMF Working Papers 2019/302, International Monetary Fund.
    12. Dhingra, Swati & Tenreyro, Silvana, 2021. "The Rise of Agribusinesses and its Distributional Consequences," CEPR Discussion Papers 15942, C.E.P.R. Discussion Papers.
    13. Jie Bai & Ludovica Gazze & Yukun Wang, 2019. "Collective Reputation in Trade: Evidence from the Chinese Dairy Industry," CID Working Papers 366, Center for International Development at Harvard University.
    14. Swati Dhingra, 2016. "Piggy-Back Exporting, Intermediation, and the Distributional Gains from Trade in Agricultural Markets," 2016 Meeting Papers 712, Society for Economic Dynamics.
    15. Lauren Falcao Bergquist & Michael Dinerstein, 2020. "Competition and Entry in Agricultural Markets: Experimental Evidence from Kenya," American Economic Review, American Economic Association, vol. 110(12), pages 3705-3747, December.
    16. Jie Bai & Ludovica Gazze & Yukun Wang, 2019. "Collective Reputation in Trade: Evidence from the Chinese Dairy Industry," NBER Working Papers 26283, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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