Firm level export decisions: The role of information cost

Costs necessary to conform with rules and regulations governing market access (i.e. compliance costs) are uncertain prior to export or collection of information which is not cost free for an individual firm. In this paper, we extend the heterogeneous firm model of Melitz to analyze how an individual firm may reduce or eliminate the uncertainty of compliance costs by paying for the information cost prior to making decisions to export. Our model indicates that in the presence of uncertain compliance costs and non-zero information cost, average profits and productivity differences between exporting and non-exporting firms are reduced.

► Collecting information is costly and sunk prior to the export decision. ► Compliance cost for each individual firm is uncertain prior to information collection. ► Uncertainty over compliance costs can be mitigated through information. ► With information costs, differences between exporters and non-exporters are smaller.