Working Paper: NBER ID: w8708
Authors: James E. Rauch; Joel Watson
Abstract: Motivated by evidence on the importance of incomplete information and networks in international trade, we investigate the supply of 'network intermediation.' We hypothesize that the agents who become international trade intermediaries first accumulate networks of foreign contacts while working as employees in production or sales, then become entrepreneurs who sell access to and use of the networks they accumulated. We report supportive results regarding this hypothesis from a pilot survey of international trade intermediaries. We then build a simple general-equilibrium model of this type of entrepreneurship, and use it for comparative statics and welfare analysis. One welfare conclusion is that intermediaries may have inadequate incentives to maintain or expand their networks, suggesting a rationale for the policies followed by some countries to encourage large-scale trading companies that imitate the Japanese sogo shosha.
Keywords: No keywords provided
JEL Codes: F20; J41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Accumulation of networks (D85) | Transition to entrepreneurship (L26) |
| Inadequate incentives for intermediaries (D52) | Maintenance or expansion of networks (D85) |