The role of insurance in international shipping costs

- Define and estimate a model of insurance costs in international shipping.
- Results show distance is not a parameter of insurance costs.
- Transportation costs are per-unit rather than ad-valorem.
- GDP per capita is a weak instrumental variable in transportation cost models.

We estimate insurance costs for international shipments, and determine that distance does not affect insurance costs. This corroborates empirical observations of the Alchian-Allen effect. We also show that GDP per capita is endogenously related to unit value through insurance costs.