International Monopoly under Uncertainty

Henry Aray ()

No 07/05, ThE Papers from Department of Economic Theory and Economic History of the University of Granada.

Abstract: A domestic monopolistic firm has the option to service a foreign market through export or by setting up a plant in the host country under exchange rate uncertainty. We analyze the effect of the parameters of the demand and cost functions on hysteresis. We also show results on the effect of taxation and labor cost in attracting or avoiding relocation. We find that when the firm is multinational it pays more taxes. Much more importantly, a tax rate reduction is effective in attracting investment and avoiding relocation. When the firm is multinational it also incurs lower labor costs. However, labor cost is not determinant in the location of production.

Keywords: Exchange rate uncertainty; real option; taxation; labor cost. (search for similar items in EconPapers)
JEL-codes: F23 F31 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2007-12-31
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Persistent link: https://EconPapers.repec.org/RePEc:gra:wpaper:07/05

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