Risk and Risk Aversion Trade Content, Gains from Trade and Trade Policy

Elie Appelbaum, Mahmudul Anam and Shin-Hwan Chiang

MPRA Paper from University Library of Munich, Germany

Abstract: Using a simple duopolistic trade model with demand uncertainty and an identical traded product, we show that we can view trade in goods as implicit exports/imports of risk and risk aversion. Specifically, we show that a relatively “risk-aversion abundant” country is more likely to be a net importer of the product – hence an importer of low risk-aversion. Similarly, a “relatively high-risk abundant” country is more likely to be the net exporter of the product - hence an importer of low risk. We also show that market correlations and differences in risk aversion and risk are sources of implicit risk-sharing and diversification gains from trade. Consequently, the relatively high-risk or high-risk-aversion country always gains from trade, whereas the other country will most likely gain unless markets are highly positively correlated. Furthermore, we re-examine the (Brander-Spencer) strategic export subsidy game in the context of uncertainty and find that because both efficient risk management and rent shifting need to be considered, contrary to conventional wisdom, the equilibrium policy regime may be an export tax rather than a subsidy.

Keywords: Patterns of Trade; Gains from Trade; Risk; Risk Aversion; Exports; Subsidies. (search for similar items in EconPapers)
JEL-codes: D81 F12 F13 F15 (search for similar items in EconPapers)
Date: 2024-07-28
New Economics Papers: this item is included in nep-gth, nep-int and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/121605/1/MPRA_paper_121605.pdf original version (application/pdf)

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:pra:mprapa:121605

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().