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Hans Keiding, joint with Mette Knudsen International Trade Under Uncertainty and Disadvantageous IntegrationINTERNATIONAL TRADE UNDER UNCERTAINTY AND DISADVANTAGEOUS INTEGRATION

By Hans Keiding and Mette J. Knudsen

Abstract

A model of international trade under uncertainty is considered where there are two countries, two periods and a finite set of uncertain states in the second period. The uncertainty of the model is intrinsic in the sense that it does not depend on the characteristics of the agents. Equilibria without trade and after introduction of trade in certain commodities are compared, and it is shown that while the standard results about gains from trade hold as long as there are complete markets in each country, the situation turns out to be more complicated under incomplete markets, where there is no possibility of obtaining insurance against price uncertainty in the second period. In this case, the classical results about gains from trade hold only under additional conditions, and an example is exhibited where the opening up of trade results in a welfare loss to every consumer in one of the countries. 1

Year: 2001
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