Source Diversification and Import Price Risk

In this article, I present a theoretical framework and derive an empirical model that relates import price risk to the allocation of an import across exporting sources (source diversification). A differential approach to expected utility theory and firm demand is used to derive a model comparable to...

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Bibliographic Details
Published in:American journal of agricultural economics 2012-04, Vol.94 (3), p.801-814
Main Author: Muhammad, Andrew
Format: Article
Language:English
Subjects:
Agricultural economics
Covariance
Demand
Demand models
differential approach
Diversification
Economic models
Economic uncertainty
Empirical modeling
Empirical research
Expected utility
Export diversification
Farm exports
Flowers
import demand
Import prices
Imports
International trade
Price risk
Price theory
Price volatility
Pricing policies
Risk aversion
Risk theory
Rotterdam model
source differentiation
Statistical variance
Studies
United Kingdom
Utility functions
Utility theory
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Summary:In this article, I present a theoretical framework and derive an empirical model that relates import price risk to the allocation of an import across exporting sources (source diversification). A differential approach to expected utility theory and firm demand is used to derive a model comparable to more popular demand systems such as the Rotterdam and AIDS models. The model is used in estimating carnation demand in the United Kingdom. Results show that while total carnation imports, expected prices and seasonality are important determinants of import demand by source, there is significant information loss when price risk is not considered.
ISSN:0002-9092
1467-8276
DOI:10.1093/ajae/aas016