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Source Diversification and Import Price Risk

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  • Andrew Muhammad

Abstract

In this article, I present a theoretical framework and derive an empirical model that relates import price risk to the allocation of an import across exporting sources (source diversification). A differential approach to expected utility theory and firm demand is used to derive a model comparable to more popular demand systems such as the Rotterdam and AIDS models. The model is used in estimating carnation demand in the United Kingdom. Results show that while total carnation imports, expected prices and seasonality are important determinants of import demand by source, there is significant information loss when price risk is not considered. Copyright 2012, Oxford University Press.

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  • Andrew Muhammad, 2012. "Source Diversification and Import Price Risk," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(3), pages 801-814.
  • Handle: RePEc:oup:ajagec:v:94:y:2012:i:3:p:801-814
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    File URL: http://hdl.handle.net/10.1093/ajae/aas016
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    Cited by:

    1. Dengjun Zhang, 2015. "The trade effect of price risk: a system-wide approach," Empirical Economics, Springer, vol. 48(3), pages 1149-1167, May.
    2. Elie Appelbaum & Ulrich Kohli, 1997. "Import Price Uncertainty And The Distribution Of Income," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 620-630, November.

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