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American Economic Journal: Microeconomics: Vol. 5 No. 4 (November 2013)

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Middlemen Margins and Globalization

Article Citation

Bardhan, Pranab, Dilip Mookherjee, and Masatoshi Tsumagari. 2013. "Middlemen Margins and Globalization." American Economic Journal: Microeconomics, 5(4): 81-119.

DOI: 10.1257/mic.5.4.81

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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Authors

Bardhan, Pranab (U CA, Berkeley)
Mookherjee, Dilip (Boston U)
Tsumagari, Masatoshi (Keio U)

JEL Classifications

D63: Equity, Justice, Inequality, and Other Normative Criteria and Measurement
D82: Asymmetric and Private Information; Mechanism Design
F12: Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
F13: Trade Policy; International Trade Organizations
L15: Information and Product Quality; Standardization and Compatibility

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