We investigate how exchange-rate uncertainty affects the foreign direct investment decision of a risk-neutral multinational firm (MNF). We assume the firm can open plants, each with decreasing average costs, in two different countries. Under certainty, the MNF would open only one plant. We...

In the absence of a binding pre-commitment mechanism, a government has an incentive to renege on announced policy. This is a well-established result in the literature. The paper applies this theory to tariff policy by developing a two-game model to analyze the credibility of government tariff...

When some input decisions can be made after price is realized, separation between production and hedging decisions still holds only under limited circumstances. Under the assumption of a restricted profit function that is quadratic in price, the optimal futures hedge of a risk-averse firm equals...