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iceberg costs, but affected (yet) sunk!

in international economics and space there is an assumption that good practice is that only a fraction of the exported good to happen destination because of trade costs.
The original idea back to von Thunen. He gave the example of a plow pulled by a horse oats on a long journey during which the exporter and then in the commodity exported to feed his nag.
Samuelson looter in engineering, took up the idea and changed the picture, part of the iceberg melts during his trip, this part is the cost iceberg.
Schematically, the price of a property that crosses a border like a stair step, more or less depending on the cost iceberg.
If the price of local production costs i pi, then the price of delivery j will be t * Ft.

If this hypothesis has little suffering the assaults of researchers is probably for practical reasons, as evidenced by Paul Krugman:

"The major justification for the Iceberg Observational Assumption Is Not Gold Analytical empirical goal, I'm his It Is to trick Technical 'Reasons employed for modeling of `convenience', thereby [...] Avoiding The Need to model year Additional industrie '(Krugman 1998, 165)."

iceberg costs have been introduced in 80 years not to confuse the issue at the time it was necessary to understand international trade imperfect competition, distiinguer effects models with increasing returns and monopolistic competition from those obtained in this modeling competition ... brief was a research strategy which allowed to look elsewhere (there was still modeling incorporating an industry Transportation eco inter, see especially Falvey (1976)).

But lately this assumption is lifted and she has good reason to be because if it is acceptable as an ad-valorem equivalent for firms operating in a competitive market, the equivalence disappears in models with monopolistic competition * and becomes untenable if one considers the transportation costs.

It should be noted that many authors speak of the iceberg as costs including transport costs. Or to include transportation, we must at least incorporate the distance. Let us turn to Fujita et al. (1999) to understand how to relate (or not) costs iceberg in the distance. According to these authors, if the value of goods produced locally is Vi then delivered value, denoted Vd is :

where tij represents the part lost en route and dij distance, this implies that the distance elasticity the delivered value decreases steadily, kilometers after kilometers:

Because of this constancy that Grossman called the iceberg cost technology for "transportation of tomatoes ... and even these perishable goods it is doubtful that the decline in value is constant. We know that such firms do not have the same behavior when space is introduced: some export to distant markets for higher quality products than they sell locally (Alchian and Allen (1964)). Implicitly
(especially in theoretical papers) it is sometimes regarded as iceberg trade costs are a monotonic function of transport costs. But the relationship may be nonmonotonic. A drop in transportation can certainly cause an increase in the value of exported but in the second time this fall may allow exporters to invest in higher quality goods for which trade costs may be higher, resulting in bell curve linking trade and transportation costs (Duranton and Storper (2008)). I will not discuss the research that attempt to explain the surprising result that the distance has an ever more important in our society and I refer to Belgodère and Noblet (2010) for a summary explanation of the puzzle before their connecting coordination costs and Specialization.
But that's not all, McCann (2005) and McCann and Fingleton (2007) invite us to look more closely at these costs by studying the iceberg original price and arrival. Let

whose first and second derivatives we easily show that the price delivered is a convex function of the distance. This is a strong assumption for transport economists that show that there are economies of scale and distance in transport, at least in some industries, the relationship may be concave. To avoid the fact that the lost portion of the property is constant with distance and introduce economies of scale, Fingleton (2005) proposes using a power function of transport costs Tij:

With this type function of density, agglomeration forces are exacerbated and as regards trade, gravity equation used to estimate is biased (Rudolph (2010)). But this type of function lacks microfoundations. Many efforts are still needed but the cost analysis with endogenous trade are already showing results in terms of interressants location choices and well being (see Matsuyama (2007) Gaigné Behrens and Thisse (2009)). To conclude, I can not resist the pleasure of quoting Article Behrens and Robert-Nicoud (2010):

We Believe It Is Time to start to think about transportation in gravement NEG. Transportation Costs Prices are Largely Which are set in competitive markets and Imperfectly Which corresponds to demand and supply shocks. The recent trade collapse Provides a neat illustration: the Baltic Dry Index (BDI) Fell Between May 20, 2008 and December 5, 2008 by a whopping 94%, and this May Have Been The burst of The Biggest of all bubbles. Technology That Dramatically Did Not change over Such A Short Period, supply and demand did ". [...] Maybe the iceberg Will not Turn Out to Be That Bad After All Assumption year, But It Would Be reassuring to know why and how this short-cut Can Be used.

Briefly iceberg raise the hypothesis should provide a better understanding of the geography of trade that has an effect on our purchasing power.

F. Candau

* See Cole (2009). Moreover, the author presents a model for the Melitz (2003) but with a utility function quasi-linear (to evacuate the income effects) and with hétérognéneité firms that is due to fixed costs and not marginal costs (for more stick to reality). This model with trade costs non-reciprocal (unlike Melitz (2003)) opens with an analysis of strategic trade policies. See on this excellent paper and Südekum Pflüger (2009) who study strategic interactions on subsidies to entry.

Bibliography

• Alchian, Armen A., and William R. Allen (1964) University Economics (Belmont, CA: Wadsworth)
• Behrens, K. C. And J.-F. Thisse Gaigné (2009) Industry location and Welfare Costs When transportation are endogenous, Journal of Urban Economics 65, 195-208.


• Cole, M, 2009.The Choice of Modeling Firm Heterogeneity and Trade Restrictions. University College Dublin Centre for Economic Research.


• Duranton, G., Storper, M., 2008. Rising trade costs? Agglomeration and trade with endogenous transaction costs. Canadian Journal of Economics 41 (1), 291(319).


• Falvey, Rodney E. 1976. "Transport Costs in the Pure Theory of International Trade," Econ. J. 86:343, pp. 536-50.


• Matsuyama, K. (2007) Beyond icebergs: Towards a theory of biased globalization, Review of Economic Studies 74, 237-253.


• McCann, Ph. (2005) Transport costs and new economic geography, Journal of Economic Geography 5, 305-318.
• Pflüger and Südekum (2009) Subsidizing Firm Entry in Open Economy. IZA working paper.
• Rudolph, S, 2010, The Gravity Equation With Micro-founded Trade Costs. Working Paper.