Risky Business : Multinationals, Uncertainty and Asymmetric Insurance

A partial equilibrium model is used to examine the international production allocation of a two-plant multinational firm that is confronted with uncertainty with respect to foreign sales. The firm produces identical products in both plants, using firm-specific factors. The internationally price-discriminating multinational has monopoly power in both segmented markets. The analysis focuses on how asymmetric insurance facilities between the firm's home and host country influence its international production allocation and level of intra-firm trade