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Risky Business: Intra-Firm Trade with Foreign Commercial Risk and Asymmetric Insurance

  • Gerda Dewit

A partial equilibrium model is used to examine the international production allocation of a two-plant risk averse multinational firm which is confronted with uncertainty with respect to foreign sales. The firm has price-discriminating monopoly power in both markets and uses specific factors in both plants, producing an identical good. We focus on the question how unequal insurance facilities in the firm’s home and host market influence the firm’s international production decision and its level of intra-firm trade.

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Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 9808.

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Date of creation: Mar 1998
Date of revision:
Handle: RePEc:gla:glaewp:9808
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  1. Calderon-Rossell, Jorge R, 1985. "Towards the Theory of Foreign Direct Investment," Oxford Economic Papers, Oxford University Press, vol. 37(2), pages 282-91, June.
  2. Krugman, Paul & Venables, Anthony J, 1994. "Globalization and the Inequality of Nations," CEPR Discussion Papers 1015, C.E.P.R. Discussion Papers.
  3. Broll, Udo & Zilcha, Itzhak, 1991. "Exchange rate uncertainty, futures markets and the multinational firm," Discussion Papers, Series II 139, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
  4. Kawai, Masahiro & Zilcha, Itzhak, 1986. "International trade with forward-futures markets under exchange rate and price uncertainty," Journal of International Economics, Elsevier, vol. 20(1-2), pages 83-98, February.
  5. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  6. Itagaki, Takao, 1991. "A two-step decision model of the multinational enterprise under foreign demand uncertainty," Journal of International Economics, Elsevier, vol. 30(1-2), pages 185-190, February.
  7. Richard Arnott & Joseph Stiglitz, 1986. "The Welfare Economics of Moral Hazard," Working Papers 635, Queen's University, Department of Economics.
  8. Horstmann, Ignatius J & Markusen, James R, 1987. "Strategic Investments and the Development of Multinationals," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(1), pages 109-21, February.
  9. Horstmann, Ignatius J & Markusen, James R, 1989. "Firm-Specific Assets and the Gains from Direct Foreign Investment," Economica, London School of Economics and Political Science, vol. 56(221), pages 41-48, February.
  10. Gershon Feder & Richard E. Just & Andrew Schmitz, 1980. "Futures Markets and the Theory of the Firm under Price Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 94(2), pages 317-328.
  11. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 857-880.
  12. Katz, E & Paroush, J & Kahana, N, 1982. "Price Uncertainty and the Price Discriminating Firm in International Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(2), pages 389-400, June.
  13. Holthausen, Duncan M, 1979. "Hedging and the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 69(5), pages 989-95, December.
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