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Barganing in International Trade under Exchange Rate Uncertainty

Author

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  • Donnenfeld, S.
  • Zilcha, I.

Abstract

This paper studies the implications of various contracting alternatives between exporting and importing firms on the value of production and international transactions. Since contracts are usually determined when exchange rate is uncertain, we show that under some conditions renegotiating these initial trade contracts can be beneficial to both parties. In such Nash-type bargaining solutions the initial contract is the disagreement point. It is shown that when renegotiation is possible, the firm produces more and the expected export is higher. Our results have some implications to well-known results concerning vertical integration as well.
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Suggested Citation

  • Donnenfeld, S. & Zilcha, I., 1993. "Barganing in International Trade under Exchange Rate Uncertainty," Papers 13-93, Tel Aviv.
  • Handle: RePEc:fth:teavfo:13-93
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    Cited by:

    1. Ligthart, Jenny E. & Werner, Sebastian E.V., 2012. "Has the euro affected the choice of invoicing currency?," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1551-1573.
    2. Friberg, Richard & Wilander, Fredrik, 2007. "Price Setting Transactions and the Role of Denominating Currency in FX Markets," Working Paper Series 201, Sveriges Riksbank (Central Bank of Sweden).
    3. Friberg, Richard & Wilander, Fredrik, 2008. "The currency denomination of exports -- A questionnaire study," Journal of International Economics, Elsevier, vol. 75(1), pages 54-69, May.
    4. Friberg, Richard, 1996. "On the Role of Pricing Exports in a Third Currency," SSE/EFI Working Paper Series in Economics and Finance 128, Stockholm School of Economics.

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    Keywords

    trade ; exchange rate;

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