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.
"Middlemen Margins and Globalization."
American Economic Journal: Microeconomics,
Equity, Justice, Inequality, and Other Normative Criteria and Measurement
Asymmetric and Private Information; Mechanism Design
Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
Trade Policy; International Trade Organizations
Information and Product Quality; Standardization and Compatibility