DP1978 | Overcoming Informational Barriers to International Resource Allocation: Prices and Group Ties

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Incomplete information in the international market creates difficulty in matching agents with productive opportunities and interferes with the ability of prices to allocate scarce resources across countries. Resource-price differentials may not be eliminated and domestic resource supplies may have excessive influence on domestic resource prices. Information-sharing networks among internationally dispersed ethnic minorities or business groups can improve the allocation of resources, though at the same time they may hurt those excluded from the preferential information channels. When ties are denser between countries with small resource price differences than between countries with large resource price differences, however, such networks can worsen the allocation of resources and reduce the value of world output.