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Domestic and Foreign Sales When Prices in Both Markets are Uncertain
Author(s) -
Dalal Ardeshir J.,
Raju Sudhakar S.
Publication year - 2003
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/1467-8586.00166
Subject(s) - economics , exploit , comparative statics , risk aversion (psychology) , microeconomics , constant (computer programming) , econometrics , expected utility hypothesis , financial economics , computer science , computer security , programming language
This paper obtains comparative static results for a firm that sells a single output domestically and abroad when prices in both markets are uncertain. Results are obtained for both constant absolute risk aversion and for Ross decreasing absolute risk aversion, using a diagrammatic analysis which exploits the properties of expected marginal utility contours. The results depend crucially on whether foreign and domestic sales are net substitutes or complements. The model is more complex and yields fewer unambiguous results – particularly in the case of substitutes – than when there is price uncertainty in only one market.