Causal Graphs and Unconfoundedness

Peter Kischka () and Dietrich Eherler
Additional contact information
Peter Kischka: University of Jena, Faculty of Economics

Working Paper Series B from Friedrich Schiller University of Jena, School of of Economics and Business Administration

Abstract: For a Cournot duopoly with a foreign firm exporting to the home firm's market hedging against unfavorable shifts in the stochastic spot exchange rate is analyzed. In a two-stage setting with product market and hedging decisions we show that hedging can be used as a strategic device. Under constant and decreasing absolute risk aversion an increase in hedging volume by the foreign firm promotes its exports and lowers the equilibrium output of the home firm. In contrast to the well-known full-hedging result in a perfectly competitive environment, we find that the foreign firm will over-hedge for strategic reasons. Furthermore, the separation result from the literature on hedging under perfect competition no longer holds in the duopoly framework, i.e., equilibrium output levels depend on the preference of the foreign firm and the probability distribution of the spot exchange rate.

Keywords: Causality; Unconfoundedness; Structral Equation Models; Graphical Model (search for similar items in EconPapers)
Date: 1999-10-10
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jen:jenavo:1999-05

Access Statistics for this paper

More papers in Working Paper Series B from Friedrich Schiller University of Jena, School of of Economics and Business Administration
Bibliographic data for series maintained by Markus Pasche ().