Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/144880
Authors: 
Broll, Udo
Wong, Kit Pong
Year of Publication: 
2014
Series/Report no.: 
Dresden Discussion Paper in Economics 01/14
Abstract: 
This paper examines the optimal production and export decisions of an international firm facing exchange rate uncertainty when the firm's preferences exhibit smooth ambiguity aversion. Ambiguity is modeled by a second-order probability distribution that captures the firm's uncertainty about which of the subjective beliefs govern the exchange rate risk. Ambiguity preferences are modeled by the (second-order) expectation of a concave transformation of the ( first-order) expected utility of profit conditional on each plausible subjective distribution of the exchange rate risk. Within this framework, we show that ambiguity has no impact on the firm's propensity to export to a foreign country. Ambiguity and ambiguity aversion, however, are shown to have adverse effect on the firm's incentive to export to the foreign country.
Subjects: 
Ambiguity
Ambiguity aversion
Exports
Production
JEL: 
D21
D81
F31
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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