This paper analyzes production, hedging, and speculative decisions when both futures and options can be used in an expected utility model of price and basis uncertainty. When futures and option prices are unbiased, optimal hedging requires only futures (options are redundant). Options are used...

A hypothesis that hedging will not be an important factor for risk-averse investors when uncertainty is caused by futures prices and when basis risk is not associated with futures price is defended. Under a condition of constant absolute risk aversion (CARA), increments in futures prices will...

This paper investigates the policy active importersï¾’ incentives and welfare implications of using production and trade polices in a dynamic framework where production decisions occur before consumption decisions. We show that the equilibrium for production taxes and quotas are not...

This paper investigates the incentives to commit price or retain price flexibility in a model in which exporting firms face different degrees of exchange rate uncertainty. The result shows that introducing exchange rate uncertainty can lead to the endogenous emergence of an unique...

Diversification, a central issue in the study of capital allocation, has much to do with symmetries and asymmetries in the distribution of asset returns. A diversified portfolio imposes symmetry on the allocation vector in order to balance out much of the asymmetries in the returns vector. Using...

Tariff-rate quotas (TRQs) have replaced quotas at the end of the Uruguay Round. We analyze TRQs when a foreign firm competes against a domestic firm in the latter’s market. Our benchmark is the strategic rent-shifting tariff. We show that the domestic price-equivalent TRQ is a better...

This paper considers a competition between two multinationals (U, J) who compete in a third market (K). The multinationals have identical cost structures, but differ in that J comes from a country that is “taste-similar†to K, and hence produces products that match more closely...

This paper investigates the deindustrialization and welfare effects of infrastructure aid in developing countries. In the short run, cost-saving infrastructure aid in the export sector increases the domestic wage rate, whereas the same aid in the import sector lowers it. The cost of nontraded...